You know how you reach all-time highs on all the indexes? Do you know what propels the averages to levels never been seen?
I'll tell you how it's done. It's done by triumphing over all the concerns that have held stocks back or caused many managers to stay on the sidelines waiting for better times -- meaning lower prices -- that never developed.
It's said that stocks climb a wall of worry to get to exalted levels. We didn't just scale the wall of fear on Monday, we breached and busted through mine fields, force fields and cauldrons of boiling oil.
It's a quiet bull, no champions, no supporters to speak of. That's why I want to go over some of the obstacles that have been overcome, because the list is rather amazing and the triumph deserves to be heralded.
Obstacle No. 1: The president of the United States is being impeached for something that's very hard to understand, but certainly seems to make a lot of sense to House Democrats. The fact that this investigation is going on right now, as the a averages hit all time highs, is astonishing. We have a sitting president who is a staunch supporter of the stock market as a wealth creator and the Democrats are using the strongest instrument possible to bring him down -- and the averages are laughing at them. The fact that this whole process is being ignored by the stock market is nothing short of astounding. But it is happening nonetheless. They should impeach all presidents, who knows how high the stock market would go then?
Second obstacle? Recession fears. Now it is true that we have weaker employment than we did a year ago, but it is still very robust vs. historical norms. Still, the fact is that we have had an inverted-yield curve and the economists have pounded it into our heads that an inverted-yield curve most certainly leads to a recession. Now the more the Fed cuts the further we get from an inverted-yield curve, something I said would have to happen. Still, so many people sold stocks, because of the endless chatter about the inverted-yield curve and the ineluctable recession that it's incredible we could have enough ammo to push the averages higher. Perhaps this last run has been accomplished in part because of the capitulation and return to the market of the managers who freaked out about a yield curve that's un-inverting before our eyes.
Third obstacle: worries about inflation and the need for the fed to stamp it out. It's unbelievable to orthodox economists that we could be so close to full employment and not have raging inflation. But we have neither the wage nor the goods inflation that you would have normally expected at this point in the economic cycle. I think we haven't seen these twin market killers because we have a different kind of economy, one where tech has held back wage inflation and WATCH -- my acronym for Walmart (WMT) , Amazon (AMZN) , Target (TGT) , Costco (COST) and Home Depot (HD) -- has kept goods inflation in check. The cloud-based companies have allowed enterprises to do a lot more with fewer workers. The pressure on labor is relentless and showing no sign of ending.
No. 4? Tariffs. We had been taught from any economics or history class that trade wars and concomitant tariffs cool and ultimately crush economies. We learned that the trade war we are having with the second largest economy in the world is supposed to be a textbook of what is supposed to go wrong. But it isn't. Our economy has absorbed huge tariffs and yet most of the fears of what was supposed to happen just haven't happened. Not at all. It's almost as if the tariffs aren't being felt at all. In the meantime, businesses are fleeing China and making their goods in other countries to avoid tariffs. We still import a huge amount from China and there are businesses that have been really hurt by the tariffs. Nevertheless, the big worries just haven't played out and, incredibly, the companies that are supposed to be hurt the worst by tariffs, the big industrials, have stocks that are helping to lead the charge higher, companies like United Technologies (UTX) , Honeywell (HON) , Illinois Tool Works (ITW) , Emerson Electric (EMR) and Caterpillar (CAT) . These stocks are flying.
The fifth concern: The continual risk of owning stocks because of individual woes. This morning we saw the stocks of two companies get clocked on some real bad news: McDonald's (MCD) and Under Armour (UAA) . McDonald's lost its CEO, Steve Easterbrook, because of ethical issues, a consensual affair. Easterbrook is a real Wall Street favorite and had produced a near 100% return in the stock. Now a new CEO, Chris Kempczinski has taken over and he's a bit of an unknown by virtue of the incredibly strong personality of his predecessor.
I don't know this new man. I do know that, historically, McDonald's has a strong bench, and I am not going to hold Easterbrook's ill-advised behavior against this great American institution. In fact, I think the stock, which had been rocked by a slightly weaker domestic number plus a new breakfast initiative by competitor Wendy's, can be bought, betting that its new low price -- $188 down from $221 -- absorbs a lot of the risk.
Under Armour is harder. The company cut its forecast around the same time that we learned that the Justice Department and the Securities and Exchange Commission have been investigating the company's accounting practices. The company has a plan to turn things around and it is doing much better than it was when it comes to the balance sheet and the inventories. Under Armour has powerful, well-financed competitors like Nike (NKE) and Adidas (ADDYY) and has to deal with a fickle consumer.
As far as the accounting scandal? I do believe that as bad as it sounds, there are no revenue recognition issues, the kinds of things that lead to severe consequences. I don't want to give false comfort, but let me just say that I'm far more worried about the turn than I am about the integrity of the enterprise, and I would not be surprised if the accounting issues blow over. I know I am out there minimizing the investigation, but it does seem that if it were really bad, the government wouldn't even let them report, let alone give a forecast.
Meanwhile Twilio (TWLO) , a once red-hot tech company, has also had accounting issues that have caused the stock to be hit twice as the problems trickle out. This one's been a stock I have stood behind for ages -- my charitable trust owns it --but we need to know more about what the heck happened here. It's not clear to me at all.
It's not just McDonald's, UnderArmour and Twilio. We've been dealing with the dire situation at Boeing (BA) caused by the tragic accidents related to the 737 MAX. Incredibly the stock is still up 8% for the year. We have watched the great American company, General Electric (GE) . flailing for ages. I think both will recover, but it's not going to happen overnight.
There are a host of other issues that could also cause fear. How can we not be worried about the chaos of Brexit? We know that Democratic presidential hopeful U.S. Sen. Elizabeth Warren has been gaining adherents and she's no friend of the wealthy stock owning class. And, of course, there's pure valuation and many stocks, stocks like Apple (AAPL) , seem to have overrun price target after price target.
The main thing you need to know, though, is that these obstacles and many like them are typical of what bull markets thrive on. They cause people to get negative and then, as the averages rally, get brought back in at higher levels. The panicked money represents the fuel, the grist, of what's needed to go higher. This market? It's got that grist in spades.