Hey, what's the deal, isn't the market always supposed to go up? What's with this decline? How come stocks are breaking down instead of shooting higher?
Only in a bull market of these proportions would we even thinking of asking such questions. Selloffs are natural and if we didn't have them we wouldn't be fixated on Dow 20,000, we would be focused on Dow 200,000.
That doesn't mean there isn't a cause to the decline. It doesn't mean we can ignore it.
So let's go there. Let's explore what's precipitating the downside so we can figure out whether there's a new wrinkle at all to whether it's just the profit-taking we would have expected to have surfaced ages ago.
First, when dissecting any down tape, I like to ask myself which is the leadership group. Today it's simple: retail. The standout negative narrative? The nasty miss by Bed, Bath & Beyond (BBBY) , a general merchandiser with a home emphasis that missed its quarter's projections by a mile, or, more specifically, reporting 85 cents a share when the Street was looking for 98 cents with negative 1.4% comparable store sales, when estimates were for a 0.5% sales gain.
Oddly, the company was pretty cold-blooded about the miss, saying sales were soft around the election but they did get better on Black Friday. But the fact is that Bed, Bath is again in a rebuilding year, this time building around One Kings Lane, a home-goods catalog, as well as Personalization Mall, which BBBY calls an industry-leading online retailer of personalized products.
Personally, I thought the quarterly shortfall fanciful given how much my wife spent this quarter and fiscal year on One Kings Lane products, but clearly even her buying wasn't enough to get Bed, Bath to the promised land of positive comps.
More important, the stock had been coming back with a bet that both housing-related items and retail in general might be doing better than we think. I don't know whether to extrapolate as easily as the Street did. But the miss was nasty, causing one of its biggest longtime supporters, analyst Budd Bugatch at Raymond James, to go from strong Buy to Hold with this missive: "We now will need to see even some scintilla of evidence of improvement before again sticking our collective neck out and recommend new purchases of BBBY."
Ouch.
The woes cascaded down the retail group, blasting everyone from Walmart (WMT) and Target (TGT) to Dollar Tree (DLTR) and Dollar General (DG) and pretty much everyone in between.
It certainly didn't help that most analysts were caught looking the other way with an expectation that the colder weather and the confluence of Hanukkah and Christmas at the same time would produce a spike in sales, not a decline.
Many were shocked yesterday that Finish Line (FINL) could report such hideous numbers in light of the fact that while Nike (NKE) may not be doing as well domestically as it likes, Adidas (ADDYY) and Under Armour (UA) were supposed to be taking part of a bigger, not a shrinking, pie. (Under Armour is part of TheStreet's Growth Seeker portfolio.)
In fact, other than Matthew Boss from JPMorgan, who told you Nordstrom (JWN) thought mall traffic was the worst since 1972, there's been a lot of bullish commentary about retail post-election. It looks like this key group may have less going for it than we thought and the normally strong home-goods category might be going down with the ship along with the already weather-beaten apparel companies.
Oh, and it doesn't help that now we are hearing rumblings of a cross-border tax on imports, something Boss also flagged. Of course, our retailers import hundreds of billions of dollars' worth of items and that tax will have to be eaten by the retailers themselves as there is very little give these days among relentlessly sharp consumers.
Not even the proverbial lower taxes so many are expecting from a Trump regime can mitigate the kind of gross-margin decline a true tariff like that would accord.
The next disappointer? A company I have on Mad Money tonight, Red Hat (RHT) . This is a company that produces software for cloud-based applications that is very much a consistent performer that has done quite well as businesses migrate from on-premises to the cloud. It's indispensable for many because if your enterprise goes to the cloud using open-source software, I could argue that Red Hat's the only game in town.
So if it's the only game in town and it is having problems closing deals, which happens to be the case, could there be a slowdown in information technology spending? If so, can we connect the dots? Workday (WDAY) , the human capital and financial cloud company, had problems closing deals. Oracle (ORCL) had strong cloud numbers but was weak on premise software numbers. Yesterday, Accenture ACN offered tepid guidance, which I took to be boilerplate conservativism for that huge information technology consultant.
But Red Hat spins a new and negative story about tech spending in what was supposed to be the hottest area out there.
These days when we see a chink in the cloud, we get all queasy about everything in the FANG cohort and they get crushed so easily, reminding us that just as they were the bright light last year, they are an area of total vulnerability this year, even as most of them are doing well. So what? They are thought not to be Trump stocks because they do well regardless of whether the economy accelerates under the coming administration's pro-growth plans.
Now, before we get too gloomy about tech, can we please pay homage to Micron (MU) , which reported a magnificent quarter, much better even than the one that was preannounced to the upside not that long ago. It was the kind of upside surprise you dream of, entirely created by not enough supply of DRAMs and flash memory to meet demand. That's incredibly bullish for others in the area, namely Cramer fave Western Digital (WDC) with its flash products as well as Applied Materials (AMAT) and Lam Research (LRCX) , two giant semiconductor companies that will have to get new orders in order to sate all of that demand, which is driven, by the way, by chips for automobiles, data centers and even personal computers.
Yes, it is that good.
And here's one from left field: classic consumer packaged-goods company Conagra (CAG) , trounced estimates. The maker of goods that we almost always find in our pantries, namely items like Swiss Miss, Reddi Wip, Orville Redenbacher's popcorn, Slim Jim's, Healthy Choice and Hunt's Tomato iterations, brands they identify as iconic and my kids identify as antediluvian, showed an impressive turn with better earnings and real margin improvement. This group's been shelled and had been thought to be uninvestable.
Not today.
Oh, and oil rallied, putting still one more bid under that group, but it fell on deaf ears for all but that cohort with no pin action whatsoever.
You know what I think? I think that after endless days of rallying, it makes sense that we cool off a bit. We don't want to come into 2017 so vulnerable that we can repeal lots of the gains. I don't think things are as negative as some of the retailers indicate. We just got good numbers the other day from Darden (DRI) and Carnival (CCL) , although neither is mall-based and they won't get hit by import taxes if we get them.
Also, this is a rally led by the financials, and there are still no flies on them.
I say we have to get used to having down days because you didn't get to Dow and 19,975 without them. And you won't get to Dow 21,000 or any other number without them either. Detours are acceptable, even logical along the way, and we have at last hit a real detour.
