At last, a breather. And it's about time that the market took a dive. Things got too easy. How do I know this? Because the Uber (UBER) driver was making too much on Tesla (TSLA) . Because the college kid was crushing it in Ballard Power (BLDP) . Because the shoeshine man had finally picked a winner in Advanced Micro Devices (AMD) . Because it had all gotten way too crazy, and it had to stop and stop it did.
Not all sell-offs are equal. Like the pruning that's supposed to occur for trees too near the power lines, it sure looks ghastly when they are done with the chipper shredder. But if you ask Californians you will know it beats the alternative. I like this pruning because the trees do grow back and they do so without mayhem.
Still, though, it's an odd day for a dive.
Consider these positives: first, Morgan Stanley (MS) bought E-Trade (ETFC) with stock, a smart move because E-Trade was coming in as a poor second to upstart Robinhood and had to do something. So why not sell yourself to a fantastic firm like Morgan Stanley? On the other hand, or other side of the trade, Morgan Stanley just reported the best quarter of all the brokerages and banks and what happened? Its stock did next to nothing. The synergies here are so easy to see, like those of the Schwab (SCHW) -Ameritrade (AMTD) tie-up that Morgan Stanley, which is giving stock, barely saw a hit to its stock.
"We are now the gorilla of wealth management," CEO James Gorman told me. This acquisition "continues to shift our profile to asset light/regulatory-friendly, without damaging a world class institutional business," he said. That's a business that I have always liked and almost went to work for. There's lots of good direct-to-consumer tech that comes with the deal, something that Gorman knows is necessary to capture the younger clients, without alienating the older ones.
There would seemingly be little overlap between the younger demographic of E-Trade and the more senior clients of Morgan Stanley. The E-Trade people could use more advice of the caliber Morgan Stanley can give them. And, of course, Morgan Stanley can make money on the credit balances of the new clients brought over by E-Trade.
I regard this trade not only as a sign that Morgan Stanley is not satisfied with its ridiculously low nine-times earnings multiple, but that Robinhood, with its zero commissions and amazingly easy app, has pretty much disrupted the entire industry. That's what happens when you get hundreds of millions of venture capitalist dollars, and you are in expand-for-scale mode. A long, long time ago, 25 years ago, I started TheStreet and I got some of this money. It was crazy how much they wanted me to lose in order to become the category winner. The more I spent, the more they loved me. I was also able to procure a gigantic E-Trade buy, because we had landed and expanded and you can double-click on that.
That wasn't the only good thing. We got excellent economic numbers from the Philly Fed, on top of numbers earlier this week from New York that would indicate that there is a bit of an industrial revival going on in this country. The numbers were so good that you have to believe that there is some sort of acceleration going on. Unemployment claims remain at a half-century low. This despite the obvious slowdown in China.
But wait, there's more. Hate him or like him, you have to believe that President Donald Trump is great for the stock market -- if not, you should have your head examined. So when you were watching the Democratic debate Wednesday night and then reading the instant analysis from multiple sources, you keep hearing that Bernie Sanders remains the champion and that the insurgent challenger, Mayor Michael Bloomberg, had a particularly weak showing. I am not a political analyst. But I do know that if you think the country wants someone who is more to the center and certainly pro-stock market, then last night's debate gives you pause about Bloomberg's chances. Part and parcel with a Bloomberg defeat and the ascent of Sanders is a justifiable belief that Trump is a stronger candidate. Therefore, last night was a victory for the bulls and you would have expected the market to rally as it looked to be doing before the opening evaporated into a wall of mid-morning rally.
If that weren't enough good news, for the market, that is, something pretty unthinkable happened: Procter & Gamble (PG) , in a presentation to Consumer Analyst Group of New York -- the most important confab for the group -- told the audience that the coronavirus in China will cause a material slowdown for the packaged food giant. The outcome? The stock rallied!
So what's got people spooked? I think it is South Korea, specifically an attack of the virus on a church group that resulted in 73 infections with two-thirds coming from one super-spreader. The attack is a reminder of how difficult it will be to keep the virus from spreading. This on top of two deaths from the cruise ship that was quarantined at Yokohama and a possible developing shortage of medicines that are made in China destined for the U.S. -- a preponderance of drugs come from Chinese factories -- has caused a chill among those who were hoping for a peak in at least the fear of the virus. Hubei, the cordoned off province, has an astounding 42 pharma contract manufacturing facilities, a reminder of how linked our two economies really are.
You know travel will be further crimped because of this, which means more bad news for hotels and airlines.
So, despite the good news about the macro economy in the form of Fed reports and employment claims, interest rates continued to plummet because of the weakness in specific industries and the dollar continued to fly up to the point where you have to expect that earnings for our multinationals, especially our tech multinationals, will be hurt. Their stocks were hammered after what seemed like endless gains.
Ultimately, it could have been a lot worse. While there were plenty of stocks down hard, including a Wall of Shame-worthy quarter from ViacomCBS (VIAC) that caused that stock to fall an astounding 17%, and a profit warning from Norwegian Cruise Line Holdings (NCLH) , which sent that stock tumbling more than 5%. I understand the former, it's got to cancel cruises in Asia and the publicity from the epidemic is about as bad as it gets. The former, though, is frankly astounding. Bob Bakish, CEO of ViacomCBS, has trumpeted this merger as a two-plus-two-equals-five affair. I now feel that this is a two-plus-two-equals-three situation and the give-up by many large investors was palpable. I think we may actually break out the Wall of Shame if things don't improve in this terrible, horrible, no good situation that is a learning lesson for those attracted to deep value, including my charitable trust.
There were, however, some real winners. The biggest one, Domino's Pizza (DPZ) , up 25% on a sharply better than expected quarter, will be on "Mad Money" later Thursday. Zillow (ZG) reported some numbers that weren't as bad as feared and its stocks rallied 16%.
Breathers like this can extend a rally. But without good news about the coronavirus, I am pretty certain that we are going to have more breathers down the pike, something the neophyte investors, who, of course, are never wrong, will not find to their liking.
