The banner headline in today's USA Today, "Falling Oil Threatens Recovery," totally captured the zeitgeist of yesterday's trading. But it completely missed the theme of today's rally, namely that the cheap-gasoline fueled consumer might be able to repel any weakness that the producers of oil in this country may cause is. I say might because we the market was up much more for most of the day until still one more oil decline curtailed the rally. Now we're ultimately staggering into the close with some mild gains as I write this entry.
Remember the battle here. Will the credit woes of the now stretched American oil companies kybosh the strength that could come from shoppers benefiting from a cheap-gasoline stimulus plan?
Or, to put it in terms we all understand, will the consumer cavalry arrive in time to save the pilgrim economy from the vagaries of the freebooting wildcatters, even with oil continuing to come down as it did today?
We didn't have to wait too long to see who would have the upper hand in this session. The cavalry arrived at 8:30 a.m. EST in the form of a tremendous number: 0.7% growth in retail sales for the month of November. That's a phenomenal gain -- far more than people were looking for -- and you can pin it right on better employment and much lower gasoline prices -- which are as much as a dollar per gallon lower than they were just a few months ago,.
So, almost every consumer oriented stock that got hammered yesterday rallied in a total reversal of yesterday's action. Of course, it wasn't just the aggregate retail sales number that spurred the positive pin action. And I am not saying the bulls are out of the bearish oil woods either, as the stock market was much higher for much of the session in part because oil looked to be stabilizing at about $61 per barrel. But then the market shed its big gains when, in the closing moments of commodity trading, oil nosedived to $59.71. This shows that many regard lower oil prices as way too frightening a prospect -- no matter what the consumer does.
Still, let me give you the particulars of the lower oil cavalry that carried sway through most of the day.
First, in the gloom of yesterday's trading, you might not have noticed that American Express (AXP), the biggest credit card company, said that Cyber Monday (the Monday following Thanksgiving) was the best day ever for card spending. That's not some National Federation of Retailers survey. It's not computation from a group of select retailers. It's the real deal. While we can't take back all of those pessimistic headlines about how the consumer wasn't spending around Black Friday (the ones that threw many off the scent of the bull), you have to be impressed with that statistic.
Second, many different retailers let it be known that business is pretty darned good and improving. First, Restoration Hardware (RH) reported an amazing 22% gain in comparable-store sales. The company is talking about being a $4 billion to $5 billion in revenue business and you know what, if you watch the video by CEO Gary Friedman, I am telling you, that you will believe it.
You may have seen Friedman as one of my guest on "Mad Money." He's got more passion than anyone in retail. His story is so magnificently worth telling that he presented the conference call as a video. The darned thing was so awesome that it gave me goose bumps. I don't want to say more about the video as I don't want to spoil it for you. I demand that you watch it. You can't invest in it unless you have.
I have told you over and over again that you must always look for situations that cannot be bound by the four walls of the spreadsheet canvas. Friedman is not bound. Restoration Hardware is not bound. And the only ones who are bound ¿ and, no doubt, gagged -- are the shorts who have made gigantic bets against this company and now find themselves down 10% in one day.
How about the schizophrenic trading in lululemon athletica (LULU) whose shares plunged when the company reported a weak comparable-store sales number this morning? But then they soared when the company made it clear that new merchandise is selling well and it could have done even better if it weren't for quarrelsome West Coast dockworkers. Hence, there was a near 10% increase in this beleaguered stock. I don't know if it is faulty anti-stink pants or what, but I smell a bottom.
Of course not all companies in retail world are being driven by better sales. But don't you have to sit up and take notice when activist Starboard, which has a real good track record with retail, acquires stakes in Staples (SPLS) and Office Depot (ODP) -- no doubt with the idea that the two should get together? I think it is a sign that things have gotten good enough that there is not a lot of risk to the downside. Remember how activists invest these days. They pick win-win situations so that if their calls to action don't work, they still do well.
Oh and let me be boring for a second and discuss how the usual suspects all rallied: Home Depot (HD), Lowes (LOW), Costco (COST), The TJX Companies (TJX), Wal-Mart (WMT), Target (TGT) and Nordstrom (JWN). Remember: Retail can have a multi-year move if oil stays down. The comparisons vs. last year when the weather was bad, the federal government was squabbling and the consumer was dealing with the pain at the pump, will be amazing.
The third sign that the consumer's strength might trump the producer's woes is the 58% pop in the initial public offering for Lending Club (LC), which brings together the lenders and borrowers over the Internet, obviating the need for a traditional bank. Consider it crowd-source lending. The fact that there's this much enthusiasm for what amounts to a bank stock without credit risk is a pretty darned amazing positive. It speaks, again, to the optimism people feel about the lower gasoline prices and better job growth.
The fourth positive was obscured by negative chatter surrounding it: the conference call yesterday afternoon from Toll Brothers (TOL). The call hammered the stock and brought downgrades that I think were just plain silly. Toll, the best builder of luxury homes, reported a strong number and then gave guidance that indicated that the housing market will get stronger in the longer term.
Did the analysts talk about the notion that demand for housing is rising and it is only a matter of time that we will go back to building twice as many homes as we are now in order to meet the demand that pretty much is assured by population growth? No, they talked about how the next eight weeks might be weaker. I was flabbergasted. I am sure the company was, too, as it bought back a monster amount of 2 points below here pretty much calling the bottom. You want to downgrade the stock when the company's got enough firepower to sop up the weakness? Be my guest. How about taking a two-year perspective rather than a two-month perspective? I know, call me old fashioned.
The fifth positive is the explosion in all things dining. Dominos (DPZ), Popeyes Louisiana Kitchen (PLKI), Jack in the Box (JACK), Cracker Barrel Old Country Store, Inc. (CBRL), Fiesta Restaurant Group (FRGI), and so many others are just bursting higher. That's the change back at the pump. It's playing out. It won't be stopped by the belly flop from Joe Blow Oil company that bought at the top.
On Wednesday, we were worried about tech weakness because of the potential for cutbacks in telecom service provider equipment because of price wars. Today, Ciena (CIEN) reported a weak earnings number but good revenues with positive commentary. That was enough to do the job. Oh and let's not forget that if retail is strong that means sales of gadgets will be strong, hence the lift in Skyworks (SWKS), Micron (MU), Western Digital (WDC) and Hewlett-Packard (HPQ).
All of these positives are coalescing to give us a pretty darned good day. It could have been a great one had oil been able to hold the $61 level, unchanged from yesterday until a reversal in the last few minutes of trading caused crude to crack $60.
Of course, everything can be reversed tomorrow. If oil drops a couple of bucks from the current level, we will no doubt see reprise headlines similar to "Falling Oil Threatens the Recovery."
Here's where I come out: If the 70% of the economy that is consumer driven gets stronger, I am willing to bet that huge positive can ultimately triumph over the looming and serious oil credit woes as the two continue this now titanic clash that gets more and more bloody as oil plunges deeper and deeper into the red. It is now down 45% from its high of the year.