Why does the market always feel so bad these days? And what makes it feel like that even when it rallies?
Some of it is because all we ever do is look at stocks through the eyes of what will happen with the Federal Reserve. Every day we guess what the Fed will do and every day we have new information that makes the guessing game harder.
For example, we know that employment has been very strong. The Fed's focused on job growth and it's getting it. So there's no reason to keep short-term interest rates too low if that's your prism.
But if your worldview is colored by how companies are doing, raising rates would be the last thing you would do. I can't name an industry group that's doing better than it was six months ago. I know you could therefore say that the Fed missed the window. That's not true, though, if you think employment matters all that much because it wasn't as good then as it is now. They haven't missed anything.
Still, the stock market's rough because anyone who follows individual sectors knows that things just aren't so hot. That's not a technical term. It's a term that explains where the economy is. That's where the confusion comes in. How can a cooling economy produce more jobs? I think the answer is simple: Jobs are in the rear-view mirror. The businesses I am looking at now will be laying off more people than they are hiring at this pace.
That's why everyone will be focused on the statement that the Fed issues Wednesday. If it is cognizant of the weakness in sectors and recognizes that employment is a lagging indicator, then it says it is going to take its darned time until the next rate hike. That won't stop the jackals from nipping. But it would take the next few months off the table for this parlor game, which could cause a relief Christmas rally beginning Wednesday afternoon.
That's only part of the reason why the market seems so disappointing. The other? The numbers themselves. Like you, I like to read James "Rev Shark" DePorre each day on Real Money, the subscription site of TheStreet. He made a terrific point Sunday night, which I will quote:
"The action has been far worse than it has appeared. It has been an extremely narrow market and that that fact has been covered up by the focus on major indices."
How narrow? Get this: The top 10 stocks in the S&P 500 are up an average of 20%. The remaining 400 stocks, Rev Shark points out, are down an average of 3%. Stunning, right? Further, only 23% of stocks are trading above their 200-day moving average. The importance of that statistic? It means most stocks are losing your money and have been for some time. The saving grace, says Rev Shark, is the divergence with the vast bulk of stocks doing poorly that has been going on since July 2014. The concern is that he believes the stocks in the major indices and the ones that are up 20% have to come back to earth before there can be a serious advance. Rev Shark has a firm view, and it's based in a lot of reality.
I don't want to be that negative. That's because if the Fed gives the right statement, then we will most likely be a coiled spring and there will be tremendous regret if you decide to dump the winners in advance of a benign admonition come Wednesday afternoon. But to be all that positive knowing that a few stocks are responsible for so much of the advance? That doesn't seem right, either.
I could tell that the caution I expressed last week was very poorly perceived by reading my Twitter feed. I got repeated blasts that if Cramer doesn't like it, then it is time to buy. But given that I liked a lot of stocks until the big Labor Department employment number put a nail into the coffin of lower rates, I have to come back to the naysayers and ask: Did you bet against me all the way up? I guess so.
How about the concentrated stocks? The difficult thing about selling them is that they have tremendous scarcity value. What's the scarcity based on? The simple fact that unlike so many stocks in so many groups, these companies -- and I am speaking of the likes of Facebook (FB), Amazon (AMZN), Netflix (NFLX), Alphabet (GOOG, GOOGL), General Electric (GE), Nike (NKE) and Starbucks (SBUX), big contributors all -- are truly doing better than they were six months ago. It is self-fulfilling. They are going higher because there are so few companies that merit being valued at higher levels than they were earlier in the year.
What else makes me less negative? I know that the market has collectively pronounced the Dow (DOW) -DuPont (DD) deal last week and the Jarden (JAH) - Newell Rubbermaid (NWL) deal today and the Marriott (MAR) - Starwood (HOT) and Pfizer (PFE) - Allergan (AGN) deals a few weeks ago as total stinkers -- value destroyers, when it comes down to it. I don't look at it that way. These combinations will ultimately yield higher prices -- just not yet.
Balanced against the combined forces of some stocks doing really well and of some managements motivated to get their stocks higher is the gravitational pull of news flow that brings so many stocks down. The politics of the moment are grim. Global growth's almost nil, with China, excluding the consumer, slowing at a worrisome pace. Much of South America is a disaster. Canada and Mexico? Terrible. Europe and Japan are of no help whatsoever. Many of our one-time favorites, like Apple (AAPL), or the semiconductors that go into their products, or the rails and the airlines, the biotechs, retailers and housing plays and, of course, anything oil, have stalled at best or nosedived. Plus, we have this new junk bond credit crisis that's getting worse before it gets better for the uninformed retail investor who bought mutual funds filled with the worst kind of bonds betting, somehow, that diversification would yield safety and easy redemptions. Wrong!
All of these have combined to make it so that when the market does rally as it has today, it can't maintain any momentum once it is no longer oversold as it was coming into today.
So, the market feels bad because many of the companies aren't doing that well and their stocks are reflecting those newfound, more negative prospects. The few with positive prospects have stocks that seem unsustainably high. If you aren't at least a tad cautious in this environment, then you are either arrogant, clueless or both.