There's an old Starkist ad featuring Charlie the Tuna, a debonair tuna fish who had good taste and fancies himself perfect for Starkist.
But he's rejected by the company because Starkist doesn't want tuna with good taste, it wants tuna that tastes good.
I am reminded of that 1960s gem because today this market rejected Charlie, the tuna with the taste for incredible high growth and instead settle for tuna that just plain tastes good because it's firm, clean and has no flaws in it.
It's amazing because if you look at the broader Dow Jones averages you don't see the rejection of the fancy stocks that remind me of Charlie and the embrace of the plain old albacore but it's there and it was palpable, painful pummeling.
It all started yesterday when the bank stocks reported much better than expected quarters than you would expect given how the yield curve has crimped the profits they make on your deposits.
Turns out that they have so many other earnings steams that are so strong that they can no longer be ignored, particularly because the stocks yield about 3% and are all buying back stock like we love good tasting tuna. JP Morgan (JPM) reported an unbelievably powerful number with strong growth almost across the board, especially its 8% revenue increase and its stock immediately soared from $116 to $121. The consumer, CEO Jamie Dimon pointed out, "continues to be quite strong."
Citigroup (C) reported a similarly strong number and investors were well received. Even Goldman Sachs (GS) , which missed its projections, was able to tell a strong story and its stock's rallying for a second day. The company's been plagued by a Malaysian bond scandal and management gave you reassurance that it can handle any of the possible range of losses. How much conviction does Goldman have? The company cut short its buyback in the quarter just finished because of the legal exposure. It's now resuming the purchases.
Today Bank of America (BAC) printed a huge number with fantastic growth. The company continues to demonstrate a level of digitization that makes me feel that it is a technology company that does banking. The company has 38 million active digital users and 29 million active mobile bank users. Last year Bank of America introduced Erica, a virtual voice assistant. It has nine million active users already. These are extraordinary numbers, numbers that were once thought to encompass only millennials but now they are just too big to believe that it's just that cohort.
Once again the company's bountiful profits were driven by the consumer with a 5.7% spend year over year. The consumer is buying a ton of stuff but is, at the same time, being prudent, which allows the company to put up numbers that to me, have real staying power. How satisfying are these figures? Warren Buffett, who owns 10% of the company has gone to the government to ask for permission to go beyond that number which is the current limit for investors. I think the wish will be granted and the Oracle of Omaha will soon be buying stock hand over fist because the stock remains so cheap.
When you get 5.7% growth in an era where the GDP is growing 2% in this country that's tremendous outperformance.
The market lapped up these stocks, because the companies showed consistent profit growth when they weren't supposed to because of the Fed's rate cutting. Their consumer emphasis lets them decouple from the trade wars. I know that the Commerce Department released numbers showing no growth whatsoever in retail. That's not what these companies are saying. They have become the ideal companies, tasty, not flashy just tasty.
The love extended to health care stocks that reported beautiful numbers and had gotten to deep value status versus their own growth rates. The market gushed over Johnson & Johnson's (JNJ) growth coupled with some reassurance about the numerous lawsuits the company faces for making opioids and talcum powder. UnitedHealth (UNH) , like JNJ, a Dow stock erupted from $220 to $238 when it blew away the numbers and gave you a gigantic boost in forecast. Previous calls had been marred by worries involving the possibility of the country electing a Democrat who favors a single payor system versus our managed care dominated regime, of which United Health is the preeminent player. This time it was the perfect tasting tuna, pure white albacore packed in water.
Or how about the beaten down transports. It doesn't take much to budge the shares of a stock selling at seven times earnings so there was no surprise when the market fell in love with United (UAL) after it boosted its forecast. There wasn't all that much pin action to the transports but they did rally. Why not? So cheap. So cheap.
Now let's contrast them with the high growth stocks that were rejected by this market. First, Workday (WDAY) , long one of my favorite companies, failed to impress analysts in a meeting held yesterday. The company's core human capital management division showed slowing growth, something that's not forgivable when you sell at 90 times earnings. I was shocked at the slowing but not the reaction. This market doesn't have any patience for enterprise software companies that don't grow at an aggressive pace.
The stocks of ServiceNow (NOW) and Adobe (ADBE) also got downgraded today and those were shocking because they are sainted. I saw nothing in particular that was disconcerting at ServiceNow other than it's expensive. But Adobe? The downgrade zeroed in on some slowing in its commerce cloud offerings, something that handicapped the company when it reported last.
The impact extended to Salesforce.com (CRM) even as the software as a service platform shot the lights out when it last reported. We will hear from founder, chairman and co-Ceo Marc Benioff later on Mad Money but I think this is total guilt by association although there is some overlap between what the Adobe downgrader focused on and Salesforce.
Can this rotation last? I don't think it is permanent. There is too much love for growth, too much belief in the future of these companies that are being taken to the woodshed. In a few days buyers will forget how good the banks performed. They will cool on senior growth stocks like JNJ and UnitedHealth after big moves. And they will circle back to the junior growth stocks because they cant' resist their growth in the face of a slowing international economy. But it will take some terrific quarters from some amazing junior growth companies to forget the bruising downgrades and price target cuts.
The good news?
There are plenty of senior growth companies that can still move higher. When Merck (MRK) reports on October 29th I bet it will be terrific. I think CVS (CVS) , which owns Aetna, will print a fabulous number at the beginning of November and with its low multiple and 3% yield you are going to get a positive reaction.
I know that there are plenty of people who watched last night's Democratic candidate debate with elation if you favor the redistribution of wealth and horror if you favor the status quo. The rhetoric was intense, particularly against the drugs and the banks. But both groups had splendid days. Are they immune from politics?
But they are immune from the trade war pain. They can create terrific earnings from the consumer or from health care businesses that have nothing to do with China.
For today that's enough to do the job.
(JP Morgan, Citigroup, Goldman Sachs, Johnson & Johnson, UnitedHealth Salesforce and CVS are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks.? Learn more now.)