Too cheap. I just keep hearing the market is too cheap and it's a coiled spring for any good news, like reports that we might lift the tariffs on China in order to hasten a trade deal, a whiff of a story that sent the market skyrocketing despite no formal acknowledgement from the White House that anything's really about to occur.
No matter the averages, which had started down, skyrocketed on the tidbit and stocks that had been crushed over China worries took off as if deal were done and signed. The news makes for a far more resilient tape than we are used to in 2018, one that makes it dangerous not to buy, as it was last year, but to sell even if the individual company news is nothing to write home about.
Consider the arc of today's session. This morning when I woke up at 3 a.m. the market was looking a little tepid largely because people weren't blown away by the numbers after the close put up by railroad giant CSX (CSX) or from Alcoa (AA) , the aluminum company. CSX seemed cautionary. Alcoa talked about many of its business lines being soft. Overnight, Taiwan Semiconductor (TSM) reported what looked to be a terrible number and guided down 22% for the next quarter, a big deal because Apple (AAPL) is a huge customer.
Oil had turned down, too, and I have been emphasizing that as oil goes so goes the market.
By the time I had finished working out the Dow was slated to bed down 100 points.
It got worse. As I made my way to the office I read that PPG Industries (PPG) , the gigantic paints and coating company, reported a just OK number and then offered a totally dismal forecast. Just nasty. Much lower than I thought and in keeping with how weak the earnings of Sherwin Williams (SHW) were when it pre-announced earlier this week.
Then we got a note from an analyst from JP Morgan who had sat down with Home Depot (HD) and shaded numbers because of weakness in housing. It was a shocker given that there's been such strong employment. Looks like there is much less correlation than most think and much more related to the stagnant housing market.
If it weren't enough, then a bomb went off, Morgan Stanley (MS) reported a subpar quarter. Morgan Stanley is the stock that I truly felt would be the best of the best given how much of its business is wealth management, a fabulous, sticky annuity stream not subject to the big swings in trading that have plagued all the other banks that have reported this week.
I was wrong. The month of December was just plain weak and it caused the company to miss both its top line and bottom line. The solid mosaic I thought made it different from the others didn't come together. It is still a cheap stock for certain and a great firm but I knew that the streak of good banking news was not over.
With that the Dow futures indicated the market would open down 150 points and the rally would have at last run its course.
Nope. Not this year. This year is a year where things have a habit of working out right.
Sure the report about a possible roll back in the China tariffs ignited stocks across the board but the truth is that the stock market started shrugging off the bad news earnings news almost immediately and stocks were meandering higher for the rest of the day.
Now there is no doubt that investors want a deal with China in the worst way, and I actually mean in the worst way, as in the worst way for our country. We know that many hedge funds have programs all set to buy for good China news. All the companies with big business in China saw their stocks u-turn and go higher including Apple, which had been hit hard off the Taiwan Semi news.
And even when we got contrary reports later in the session that perhaps there might be no deal the hedgies sold down the China group but they still hung on to some of the gain.
Now I have no way of knowing if there is a China deal or not. I think it is a sucker's game to try to predict one in a moment where there seems to be such chaos going on in Washington.
But what matters isn't a trade deal. What matters is that the market takes is cue from the positive and ignores the negative.
Take the Morgan Stanley shocker. I said to myself when I saw it that the whole group would be laid low by this disappointment and perhaps the rosy hue would dissipate given that a lot of it was based on overlooking the weak month of December. Nope, not at all, the others kept going higher as if there was no news impacting them and it was positive.
Then away from the banks we saw a fabulous rally in pharma, something based on, well, nothing. We haven't heard anything much from any of these companies since last week's JPMorgan healthcare conference, but a stock like Allergan (AGN) which has been ripping since our interview with CEO Brent Saunders has continued to ramp. Same with Eli Lilly (LLY) , Regeneron (REGN) , Glaxo (GSK) and Amgen (AMGN) .
Oh, and even some of the companies that disappointed recovered. PPG rallied almost four points on the possibility that engaged shareholder Nelson Peltz wants to replace current management and bring back Chuck Bunch, the former CEO. That's an amazing move off of a hideous disappointment. And Taiwan Semi actually went higher on the possibility that a bottom has been put in.
Oh, and oil ended up higher on the possibility of a deal with China.
What the heck is going on here?
I come back to the concept that stocks just got too darned cheap at the end of the year. We are still coming out of the great bear market that began when the Fed decided to take the economy out and shoot it and that ended when Jay Powell came to his senses and stopped chattering about the need for multiple rate hikes.
I know we have to be vigilant. Within minutes of hearing about a potential trade deal we were immediately greeted with people talking about whether Powell would immediately started hiking if a trade deal occurred, despite a government shutdown that's now cooling the economy.
But let there be no mistake about it. When you see this behavior -- and it is very rare behavior indeed -- it's about how money managers like the companies that now have the urge to merge, simply recognize that the overreaction to the downside has created values that give people a level of certainty that they won't be blown out if they buy stocks when they will down. Instead they will be rewarded with higher prices almost instantly, a remarkable turn of events that I think is stunning those who believed that 2019 had to be a bad year no matter what transpired.