This market's got some engine to it, hasn't it? After having been up about 4% in a straight line, you would think that we'd have some profit takers coming in. But none did.
I think you must understand how extraordinary this rally is. We are having wholesale re-evaluations of what the market will pay for the earnings of companies. It's remarkable because typically, you would need something to happen to trigger such bullish behavior.
But nothing has.
Sure, we had a Fed meeting that went the way of the bulls. And oil's stabilized. Yet what matters is we have had a total absence of anything significant occurring.
Think about it. Think about the absence of catalysts. Start with the Fed. What did the Fed do to inspire this market? Actually, nothing at all. It stayed the course. It said it would be patient.
How about oil? All it did this week was nothing. In fact, it meandered around the $50s. Earnings? Pretty much of a dud this week, wouldn't you think? Some good, like Carmax today, and Red Hat (RHT), the cloud-based software company we will hear from tonight, both of which reported strong quarters. But then, there's Nike (NKE) and Finish Line (FINL) which both disappointed expectations.
The day before? Same pattern. Good numbers from Jabil (JBL), the contract manufacturer, and Oracle (ORCL), the software company, but then disappointments from FedEx (FDX) and Joy Global (JOY) the mining equipment company.
Or how about the data? We got a bunch of numbers out of China. They were all weak. We got more bad news out of Europe. Nothing special, just the same degradation. Same out of Japan. The United States? All just consistent with what we have gotten, nothing more.
Geopolitical risk? No movement. President Putin dug in his heels. We can only expect more sanctions. Sure, we got an olive branch to Cuba from our President, but that's a country of 13 million people where, if every single one of them started shopping here and buying our goods, would mean nothing.
So what the heck is happening then? I think it's three things. One is that there were expectations for a totally different kind of week. The conventional press had gotten an inkling that Fed Chair Janet Yellen was going to start the tightening. That caused hedge funds to take one more bite of the short-selling apple. All year, those who weren't 100% exposed to all stocks except, perhaps, for the oils, have had a huge run of things and made a ton of money. But the hedge funds keep hoping for an event to occur that would crystalize the potential horror out there, of which a rate hike would be one, and they didn't get it. I saw huge bets against the market made going into the Fed meeting. Those bets were unwound Wednesday, Thursday, and today, and that's a huge part of the rally and its aftermath.
Second, those who thought oil was in freefall pressed their bets because there simply was no rhyme or reason why it should stop its decline. There was nothing from the Saudis, nothing from OPEC, nothing from our country. Just more and more pumping of oil. The fact that it stopped, the fact that the slide reversed itself even a bit meant that the end-of-the-world scenario of a collapse of even one oil company, state or private, didn't occur.
Again, without a catalyst like an actual financial disaster from lower oil, conventional sellers did not materialize. Without them, you just don't get the negative prices that gives the shorts the win.
Finally, without disasters, without catalysts, fund managers were willing to pay more for the same data. We have stocks that are levitating on the same news over and over: retailers and airlines on lower gasoline, biotechs on potential approvals, and even bottom-fishing with oil companies.
The best to buy? Retail: Restoration Hardware (RH). Restaurant? Fiesta Restaurant Group (FRGI). Airlines? Spirit Airlines (SAVE). Biotech? Bluebird Bio (BLUE), Kite Pharma, the new Juno (JUNO) and Isis (ISIS) to go with Biogen Idec (BIIB), Gilead (GILD), Celgene (CELG) on first line use for Revlimid in Europe and Regeneron (REGN).
