Are we now in a rolling bull market? Is that possible? Is that what's propelling the market since the bottom, the Christmas Eve massacre? Days like today sure make you feel like it. We've been able to bounce back from adversity, rally on days we should have gone down and today's become part of a 2019 pattern that we have to explore.
Specifically, today started real ugly. It was slated. We got a truly nasty forecast slash by Macy's (M) , the giant retail chain, and we heard from Kohl's (KSS) and Target (TGT) and we didn't get much good news there either, although I would argue their numbers weren't really as troubling as those of the venerable, classic, largely mall-based department store chain.
Then American Airlines (AAL) , the largest airline in fleet size, revenues and passengers cut its forecast because of weaker fares, and the guidedown left people scratching their heads about exactly how weak the economy ha deteriorated since these companies put out their predictions not that long ago.
When you combine that with the negative numbers we got out of the homebuilders and Apple (AAPL) the other day, you have to think, well here we go again, we are going to have a the rollover that we have feared, the fabled re-test of the levels that we so quickly left behind when Jay Powell said last week that perhaps the Fed could be more measured about rate hikes and the president's trade team met with the Chinese with the hopes of getting a last minute deal to avert further tariffs.
But it didn't happen. Sure, the money fled out of the airlines and the retailers but it didn't leave the market. Instead it moved to the packaged goods stocks, the industrials -- including the aircraft manufacturers -- despite the weakness in the airlines and some of the same techs that started rallying yesterday.
What's going on here?
How can this be?
How did we get from a rolling bear market to a rolling bull market where two signature groups, airlines and retailers, can't bring the market down?
Several reasons.
First, I am a disciple of Marty Zweig, the late legendary fund manager who taught a whole generation of investors "don't fight the Fed and don't fight the tape." When I first decided to focus on stocks I would always watch Lou Rukeyser's show Wall Street Week. He would have fabulous panelists on to talk about the economy and stocks and none was better than Zweig. He explained that when the Fed began tightening in earnest, and it sure started doing that last year, you can't own stocks and that there's a likelihood that a bear market would ensue. That would usher in a prolonged period where stocks would basically want to go down, that there would be too much supply, not enough demand and money would flee the market.
From the last part of January 2018 until the horrendous selloff that crescendoed on the half-day of trading before Christmas Eve you were fighting both the fed and the tape.
We didn't know it at the time but the Fed was pivoting to a more benign attitude after putting through a rate increase in large part because it started paying attention to the tape, the market turmoil and what it might mean.
The switch was a huge one for two reasons. One is because at the beginning of October, right at the moment when the economy was about to peak, Fed chief Powell told everybody who would listen that he was on a mission to raise rates, one last year and at least three this year, and may even need to overshoot to be sure that inflation didn't roar back because things were so robust.
You were surely violating Zweig's dictum then if you bought anything. We had been going through periods where leadership groups could take us down but the money seemed to rotate to other groups but the winners went more narrow and more narrow until the end nothing could rally.
Second, it was huge because Powell didn't even seem to be aware of what was happening underneath the terrific employment figures.
Even today, the market dipped when he spoke about the strength that he keeps seeing. "We see continued momentum from the data right through the beginning of this year," he said in an interview aired today. He repeated it late in the Q&A: "If you look at the incoming data right through the end of the year, and the beginning of this year, you don't see any evidence of a slowdown."
Jeez, Louise, no evidence of a slowdown? Continued momentum? Do you mind telling that to Jeff Gennette, the CEO of Macy's, who told the world today that after Black Friday his company saw marked deterioration in consumer spending in many different categories? Do you think the decline in Macy's stock, off 18%, isn't evidence of a slowdown? Oh and to be sure, unless you think that it is just the mall, as much as I like Target and Kohl's, their stocks were rocked beyond recognition right along with Macy's.
You think that somehow, American Airlines is an outlier? I don't know, not after what we heard from Delta (DAL) just six weeks ago. American was merely confirming the shortfall that Delta didn't expect to happen given all the robust data and the dramatically lower fuel prices that should have led to a lot of upside.
Just yesterday morning Lennar (LEN) , the largest homebuilder in the country, told us about how disappointing the year ended, something that, even if it were temporary, did happen. If you thought it was just Lennar, KB Homes (KBH) , another giant homebuilder with an emphasis on what had been the red-hot California economy talked about noticeable cooling.
So why didn't we have the continuation of the rolling bear market that defined 2018 until the outright Kodiaks flooded the zone. Why are we not fighting the tape?
Because as certain as Powell was and is about how strong the economy, as correctly positive as he might be about the employment and even the need for the last rate hike he somehow recognizes that inflation isn't roaring back and the stock and bond markets are saying not all is well.
Now I am perturbed that Powell doesn't follow the actual action underneath, the one that I follow, that actually explains the weaknesses in housing, autos, airlines, travel and leisure plastics, cellphones, semiconductors, oil, lumber, copper, plastics and now retail. I am shocked, actually that he can say that he does not see "any evidence of a slowdown." Does he need a briefing from me. He's getting one. We call it the A block on Mad Money.
But you know what?
Because he also said today that he's not going to lay out an etched-in-stone trajectory for rate hikes, because he is going to be "patient and watch and see what does evolve" the best quote in his whole Q&A with noted financier David Rubenstein, the bulls are no longer fighting the Fed or the tape.
And that's why, even with no real trade deal yet, with no real sense of how all of these weak corporate numbers will pan out, the bulls can run free even on a day that should have been destroyed by retail and airlines and would have most certainly been won by the bears pretty much any day of the week in 2018.
