How can the same things that sent us down not that long ago actually be totally ignored now? How can we have still one more day where we aren't concerned about exactly what ailed us before? How can bad news then be good news now?
That's what's going on today, and it's imperative that we discuss it, put it in context and not be too cynical or dismissive of the action.
Most important, let's start with a presumption. Many of the same ills of the old days are now considered tonics for the new ones.
For example, not that long ago we were scared of every utterance from anyone connected with the Federal Reserve. Why? Because we were so afraid of a Fed rate hike, any rate hike.
Just look at the history. In August 2015 we got a rate scare. One Fed official said the economy was strong enough that it could withstand even the ongoing crash in Chinese stocks. It sent the market into a tizzy that resulted in a 1,000-point decline in two days. One interview, one person and not even the Fed chair or the vice chair!
Then in December, even as we were well prepped, we got an actual quarter-point hike and immediately began a swoon that led to one of the worst January performances we have ever seen in the market.
For years now, but most intensely at the beginning of this year, every time a Fed head spoke we listened with our hearts in our mouths and fear in our brains. Who scheduled all of these talks? Who gave these unelected officials such power? We cursed them when they said the economy was running too hot or that it didn't matter what was going on overseas. We could handle the challenge.
In the end it became completely absurd. But we knew that at any given moment the economy could stall out or we might catch a month or two of weakness and a rate hike would be the coup de grace to whatever meager expansion we might have.
Then two things happened. First, we got some really strong non-farm payroll numbers, month after month, that made us feel on firmer ground.
But, far more importantly, the country elected Donald Trump over Hillary Clinton and routed the Democrats, taking both the House of Representatives and the Senate.
That change signaled that Washington would not only stop being an obstacle to growth, but it would be a friend of business. President-elect Trump ran on a platform of deregulation, repatriation of U.S. funds from overseas and a lower tax rate for all U.S. companies. It was pretty much the polar opposite of what Hillary Clinton was running on, and his election caught almost everyone by surprise. Still, with Congress going Republican the agenda wasn't a recipe for more gridlock; it was a recipe for growth -- and souped-up growth at that.
You see it's almost impossible for there not to be more growth if that trifecta of positives - deregulation, lower taxes and repatriation of overseas capital -- is put into place. It's why I think, if all goes well, we could see 4% growth. Sure, there's a cost to some businesses next year.
Now there is no such thing for a free lunch. We will talk to Greg Hayes, the CEO of United Technologies (UTX) , who got a call from Trump before Thanksgiving asking that he not send all those Carrier jobs in Indiana down to Mexico. It was unprecedented.
Still, though, the growth imperative, instead of gridlock, has freed the animal spirits of this market and now a rate hike is perceived as a small cost of doing better and bigger business. In fact, it's better than that. When we bandy about the term of the market we are way too imprecise. Certain parts of the stock market feed on gridlock. Other parts, namely the banks and the infrastructure-related stocks, are desperate for it.
Frankly, it's gotten to the point in this market where stocks like JP Morgan (JPM) and Bank of America (BAC) better get a rate hike or their gains of 25% and 29%, respectively, could be repealed. Same with the 39% increase in the stock of Caterpillar (CAT) , always considered to be a winner in a super-growth world.
Now we don't even bother to listen to the Fed governors and presidents as they speak. Give me a rate hike or give me death, or at least death to the bull.
How about news from overseas. Last night the Italian electorate voted overwhelming for change, although we aren't sure what kind of change. But we know it is more for nationalism than globalism. Prime Minister Matteo Renzi immediately resigned recognizing that he was dramatically out of step with the Italian people who are sick of slow growth and what the European Union has inflicted upon them.
I immediately heard from pundits how unexpected this was and how treacherous this could be for the U.S., and the futures sold off immediately, just like they did on Brexit and on the election of Trump. But by the time I woke up at 4:30 a.m. the futures were up and so was Europe. There was no surprise. Even as Italy is hobbled and needed any health it can get, the voters want more opportunity, which will again, theoretically -- it is Europe -- they will see more growth. What would have been a huge and surprising negative was now a built-in given and a positive one at that.
Here's another: For the last half-dozen years if you told me that the dollar would be as strong as it is I would have told you that you have to get out of Dodge right now, that earnings estimates would be way too high and that our competitiveness would be threatened. When you see the euro down to 20-month lows versus the dollar and remember how closely we used to correlate to that currency you would expect to be hearing number cuts left and right for the big multinationals. Instead we are completely ignoring the dollar's strength.
Is that healthy? I would say not. But if you are selling off a strong dollar you would have left this market a month ago at much lower levels. A strong dollar is a part of the pro-growth bargain because of the next shocker: The radical rise in interest rates that has left in its wake almost $2 trillion in bond losses.
You would expect anything that would drive rates up from, say, 1.7% to 2.4% in the blink of an eye would cause a paroxysm of selling. Nope. Not at all. Because that's what happens when there is more demand for money. Again the banks win. We have to accept that some stocks, namely the bond market-equivalent stocks, get sacrificed. And they have been. But the stocks of companies that benefit from growth aren't phased.
I know that I am making growth sound like a magic elixir, a panacea that produces great gains no matter what. That's not the case. Nevertheless, real growth breeds a real shift in what stocks investors like. Right now they like the industrials -- despite talk of protectionism -- and the financials love higher rates. Maybe we should start thinking again that what's good for the American people -- growth -- is good for stocks. Wouldn't that be a refreshing change?