The S&P 500 hit an all-time high on Nov. 26. In case you have lost track of things amid the flurry of Black Friday and Cyber Monday sales data, that was a mere six days ago. Already, I am receiving inquiries into whether the market has topped out for the year. Really? Come on guys and girls, the stock market can't go up every single day. Imagine the valuations if it did. It would be 1999 all over again!
Day in and day out, the market is searching for the truth on Corporate America. For instance:
- Are a company's sales and earnings poised to grow faster than its management team has articulated to Wall Street?
- How would stronger-than-expected profits, and subsequently cash flow, be used to further bolster shareholder value? Maybe via an acquisition? Or is it through investing in a lower cost structure, which in many cases requires parting ways with long-time salaried workers?
Those are the basic mechanics of investing, I think. So while I am cautious by nature, right now we are just not looking at a major negative fundamental event into year-end. Hence, the market could trade higher into next earnings season (barring a major, surprise earnings warning later this month).
The more I venture out of my comfort zone and read on the oil market, it's apparent that the plunge (which could be long term) is not reflected in the valuations of companies that stand to benefit. If a consumer today is saving, on average, $1,100 annually (according to some research) due to cheaper prices at the pump, then you best believe that will emerge in the cash registers of Chipotle (CMG) and Target (TGT). It's also likely to be an earnings tailwind to heavy machinery manufacturers such as General Electric (GE) and Caterpillar (CAT).
Having said that, if by chance you require a bit more convincing that the market rally hasn't run its course, check out the relative outperformance of the Dow Transports in the past month. I like how the Transports (represented in the chart below by iShares Transportation Average ETF (IYT)) even bounced back a little in the face of dreary, early readings on sales from physical retail stores to start the holiday shopping season. This action signals to me that consumer demand is there, and likely to stay there, meaning various research firms are dead wrong.
I had a nice chat with Macy's (M) chairman and CEO Terry Lundgren on Black Friday morning for TheStreet. One thing we discussed was the possibility of Macy's launching smartwatch sections in its stores next year. I expect these shops to emerge, and be a real threat to Fossil (FOSL), Movado (MOV), Michael Kors (KORS) and Coach (COH). But our conversation ultimately got me thinking about who could win from new electronics vendors being installed on the giant sales floors of department store retailers and discounters. Here are a few possibilities:
- GoPro (GPRO)
- Motorola (MOT)
- Apple (AAPL) (obviously; Best Buy (BBY) stores will see separate Apple Watch sections)
- Fossil (smartwatch relationship with Intel (INTC))
Indeed, all of these new outlets for cool technology would benefit chipmakers, which I am not an expert on. Food for thought.