Why does this market keep going higher? Because people keep thinking it should, and will, go lower, that's why. That's why you have days like Monday that start strong and can't maintain the momentum, even as it seems like a natural that a rally can hold.
Why is this? What happens -- what twisted logic do the bears who masquerade as bulls employ, and why do I think their actions are the reason we had such a terrific first half with the S&P 500 up 17%, the Dow increasing 14% and the Nasdaq rallying 21%?
Let me explain why today is representative of this entire year.
First, over the weekend President Donald Trump declared a remarkable truce in the trade war between our nation and China. I say he declared the truce because Xi Jinping didn't seem to give up anything.
But it is important to recognize that the bellicosity had all been on Trump's side ever since the Chinese backed away from serious concessions, and I don't think we have seen all that's going to come from the Chinese, although the stock market sure seemed liked we have.
I know there were many pundits today who said that there was nothing really resolved and that the whole thing was a nothing burger-beyond meat!
These pundits could not be more wrong.
First, there was the shocking news that the U.S. was letting up on some of its Huawei sanctions, meaning that many of the U.S. companies that had been providers to this $100 billion in sales beast would be back in action. How important is this? Just last week Micron (MU) reported that the Huawei sanctions cut $200 million in sales just in the last quarter, and Micron wasn't even the worst one hit. Many think that Western Digital (WDC) , Qorvo (QRVO) and Skyworks (SWKS) were hit even worse.
If you had asked me last week what the prevailing mood in the White House about Huawei was, I would say they were committed to putting Huawei out of business, because they believe it is a rogue company run by the Peoples Liberation Army that wants to dominate the 5G universe. I think that's right, as Huawei's telecom equipment is better and cheaper than the alternatives, including Ericsson (ERIC) , Nokia (NOK) and even Samsung (SSNLF) .
In that sense, some in the White House believe Huawei to be a menace to our technological hegemony. Now, while we don't know what kinds of equipment sales are still off-limits -- it is unclear, but is related to national security and not consumer needs -- we do know that the "drive Huawei into bankruptcy crowd" is sure failed, at least for now.
That's a major boon to the aforementioned semiconductor companies, as well as to Nvidia (NVDA) , which has a deal in the balance, the Mellanox Technologies (MLNX) purchase, which is held up by Chinese officials. When we visited Nvidia, we heard CEO Jensen Huang was adamant that this deal, so important to Nvidia's next level of Internet of Things domination, would be approved by the Chinese. You have to believe that the chances of such an approval increased dramatically.
This is a sea change people, and to ignore it is silly.
Second, the stay of execution to the next round of tariffs was, quite frankly, shocking. Many CEOs I deal with thought they were a done deal. So did many policy-makers. There had been a sense that the tariffs on the last $300 billion were coming as soon as possible.
Nope.
And what did we get? Some vague promises that there would be big agriculture buys for our farmers. I don't even know how that happens, given how we keep hearing from agriculture people, like Martin Richenhagen, the CEO of AGCO Corp. (AGCO) , that once that supply chain switches from, say, the US. to Brazil -- something that has happened for soybeans -- it's not that easy to switch back.
What's so ironic about the skeptical perception that nothing really happened of import at the G-20 between the U.S. and China is that it has not spilled over one bit to those who fret about an economy being too strong for the Fed to cut rates in July.
That's right: While trade bears captured the stock market, believing there will be no improvement and the truce will be ephemeral, the Fed bears believe that the Fed will be on hold and not cut this month, because of the good news about trade.
This is a case of not having your cake or getting to eat it. This group fears that if there is not a rate cut, the market will plummet because it has run so much since the potential-cut landed on the table. We saw sellers all day, and many seem to be related to those who thought a rate cut was in the cards.
Now lets cut to the chase of what's wrong with these views. Our stock markets have run wild the first half of the year not despite, but because of the endless pessimism. Stocks have climbed a bizarre wall of worry that stems from a belief that both earnings are going to collapse and the president cares more about crushing China than he does about helping stocks.
But earnings have proven to be resilient, far more resilient than the pessimists thought. Lower interest rates have given dividend-paying stocks a second wind when they looked like they were flagging. And the president has a bullish habit -- he can't stand to see stocks down, as you can tell if you follow him on Twitter. He loves new highs and he wants to take credit for them. Unlike previous presidents, he's hitched himself to the averages and he doesn't like to see them plummet on his account.
The impact?
Every time managers leave the premises, they are brought back in by an amazingly pumped S&P 500. Skepticism is a positive quality for a money manager. Too much skepticism is a killer.
If you want to have a living, breathing example of what I am talking about, look no further than Apple (AAPL) . At the beginning of the year the stock of Apple started at $157. It then fell to $141 on a negative pre-announcement. It has now rallied back to over $200. What's happened during this period?
How about a perception that sales in China have plummeted? How about a sense that the company is in the cross-hairs of the Chinese, as a way to show President Trump they mean business when it comes to trade? How about a sense that President Trump wants Apple to move manufacturing back to the U.S. when, of course, the manufacturing was never in the United States?
These kinds of anomalies are everywhere in the market. The press and the government hates Facebook (FB) . But the viewers love it, or at least they love Instagram, so the numbers are going up when they should be going down. The news flow out of Boeing (BA) has been horrible, but the stock's up 10% for the year. The banks are horrendous, and then they get a green-light from the government to buyback more stock and increase dividends -- something they have been doing seemingly forever -- and this time it boosts the stock in a very large way.
I could go on and on. Suffice it to say that those with one step out of this market need to be doing a bullish two step, and every time they leave the dance floor they're pulled right back in, except at higher prices.
Apple, Facebook and Nvidia are holdings in Jim Cramer's Action Alerts PLUS member club.
