Throw those economic textbooks away. Trash the stock treatises. Ban the bond histories and bend the yield curve. They don't matter anymore. They don't, because today we hit a new high in the Dow Jones industrial average at the same time that interest rates cratered. It's just not supposed to be that way. You can't have a boom and a bust at the exact same time, can you?
Until today I would have said it's impossible.
You see, I am most definitively of the boom community, something I find verified every day. Just this morning in I interviewed Delta's chief executive, Ed Bastion, on "Squawk on the Street" and he agreed with me that we might be on the cusp of the greatest boom in American history. And, unlike me, Ed's not given to insane, or some would say, inane hyperbole. What's real and what's fake? Are we going to have a Roaring Twenties scenario, or will we soon be dead in the water?
Is it time to rotate out of the industrials and plow into something like health care, as the bonds say - or, should we stick with the growth with the massive inflation rap that's currently gripped Wall Street? Surely, they both can be right.
Or, can they?
Now, for some, this is a story of "so what?" For those engaged in the endless conversations involving electric vehicles or cryptocurrencies or the gospel according to GameStop (GME) , the idea that we would have a gigantic step down in rates when all anyone is talking about is inflation, probably means nothing. You know single issue politicians and voters? We have single stock camp followers, who don't care beyond the ken of WallStreetBets, Ethereum and ... non-edible tokens ... or whatever.
But for the traditionalists who run trillions of dollars, the money men and women, who actually set the prices of most stocks, exchange-traded funds, and averages with their trillion dollar chess pieces, this scenario playing out now, is simply not supposed to happen. You can't have copper roaring, oil soaring, lumber screaming, plastic rocketing, linerboard zooming, freight pole vaulting and housing hotter than hades -- and still have interest rates dropping like an anvil off the Empire State Building.
When we get this bizzarro confluence, a monsoon in the proverbial stock market desert, it allows what was thought as a totally dead group, one that rigor mortis had long since set in, to pull a real Lazarus. I'm talking about health care, a sector long since left behind by this market which, bizarrely, had become the cheapest sector in the entire market. Yes, a group that had always been the most expensive of all, had so fallen out of favor that it, relatively represented the best value, just waiting for the signal to move. And given, how monumental the move was, it tells me that it may not be done.
Before I get ahead of myself, let's set the scene. For most of last year the so-called stay-at-home stocks roared while the go-about-your-business equities wallowed. But ever since we got our vaccines, about three years before they told us could occur, the Great Reawakening stocks took off and haven't looked back.
We have heard endlessly from people who come on air and are actually paid to run money that there is this tug of war between value vs. growth, with the value stocks riding the wave of the Great Reawakening, trouncing the submerged, drowning shut-in equities.
The debate is framed as value vs, growth, with value winning out. I keep telling you it's a false construct, a dichotomy of bogosity, because value and growth have nothing to do with it. Instead it's just about two kinds of growth, the secular growers that do well despite the economy, and the cyclical growers that do well because of the economy. Value has nothing to do with it because the so-called value stocks have moved so much that they are now more expensive than all but those wacky tech stocks that sell at a multiple times sales, not earnings. The rotation's been vicious and endless.
And today it stopped.
The money rotated back to all sorts of now relatively less expensive techs and into health care, yes, health care, the forlorn sector that has been punished endlessly to the point that, Pfizer (PFE) , a fabulous company, one that is half the reason why we might get the pandemic under control, has been in retreat. Wrong group. Wrong stock.
The move was aided by excellent earnings from health insurer and Dow component United Health (UNH) , coupled with a shocking move by Elliott Partners, which has built a multi billion stake in the flailing Glaxo Smith Kline (GSX) . Both put on some hefty gains. The high spirits extended to the downtrodden Eli Lilly (LLY) , where shareholders including my trust, have suffered immeasurably after the vicious panning of its Alzheimer's drug. And it ignited the stock of Regeneron (REGN) , which has a terrific drug that helps get people out of the hospital or keep them out if they have COVID, a drug that has languished on the shelves, ever since it helped save the life of the former president. Somehow neither the Centers for Disease Control and Preventoin nor the National Institutes of Health has gotten behind Regeneron's miracle medicine, but the governor of the COVID-besieged state of Michigan, Gretchen Whitmer, sang its praises in a speech yesterday, which gave the stock new life.
The stocks of hospitals, managed care, medical devices, and pharmaceuticals all rallied and rallied hard. How hard? Has any company been beaten around the head more than Johnson & Johnson (JNJ) ? But even it went up.
Now the market didn't overlook the fact that the government reported blowout retail sales and many in that group rallied. The secular growth tech stocks, the Twilios (TWLO) and Oktas (OKTA) and Ring Centrals (RING) -- how can I help you - also moved because they go up when rates go down.
But the banks gave up the ghost, not because they put up bad numbers, but because the smart money was betting that Fed Chief Jay Powell would have to bow at the feet of the inflation gods and raise rates because you don't keep them low with an inflationary boom.
Where do I come out? I am still in the camp that Jay Powell is right and inflation will prove more temporal and rates can still fall. When nearly everyone universally believes interest rates are going to go higher, the market tends to make the majority look like knuckleheads. Today was a real knucklehead day.
Or, to put it another way, I think that the one time fabulous health care stocks, the ones that used to comprise the largest group in the stock market but is now a shadow of its former self, are now coming to life at the expense of the cyclical growth stocks and you should grab one before they take off altogether. They are the ones that have wandered in the desert long enough, and they are now surfing the Dow Jones river, taking it to new heights even as they were supposed to be drowning in the deep, never to be seen again.