Let's give it a rest. You can't have the darned thing go up every day without some sellers appearing and we can't justify their selling in some definitive way.
Instead we use it to regroup and posit the market's next move, because this is precisely the kind of pullback I talk about when I say, "I like that company very much but that stock's too high."
Now I am not dismissing the selling as random. But I regard this as "excuse" selling meaning that there are many excuses to sell but they don't really add up to anything but profit-taking.
Why don't we go over the excuses so you know and are armed with them when they are used and make you faint and weak-handed.
First, we have the "economy's recovery is derailed" thesis. This morning we got our 17th straight week in which initial jobless claims totaled at 1 million. We were hoping to see some sign of that figure moderating. There's no recovery there to speak of. We do need more people to be employed, of course, but there's nothing new here that would suddenly make people sell stocks.
Second, the re-openng has clearly been stalled by the outbreaks in Florida, Texas, Arizona and California. By this time the bulls would have liked to have seen a decline in the numbers from these states. We aren't getting it. That said we do know that the death rates are much lower than they were in New York when its outbreak raged. That's because doctors have become more seasoned at how to handle this novel virus. For example, if you were on a ventilator in New York there was an 80% chance of death. Now it's 30%. Further, the use of steroids, Remdesivir and blood plasma, and a recognition that the disease attacks the entire vascular system not just the lungs.
Third, the U.S. government has gone from being a tough trading partner with the Chinese to being a cold warrior with no desire to trade with them. It's quite chilling to see the Attorney General of the United States attack Hollywood, Microsoft (MSFT) , Apple (AAPL) and Alphabet/Google (GOOGL) for being Communist lackies. I thought I was back in the 1950s. But that's precisely what you are supposed to think. Our regime wants to cordon off China and is going after any company that does business there. Yes, Apple does, but I would think that the president of the United States would be proud that so many Chinese select a U.S. company's phone over their own companies' models. Still, it's clear that the president increasingly regards any company that tries to sell goods in China as an appeaser of dictators. In fact, it wants to go after U.S. companies that have been adamantly against the Party's totalitarian ways. I always liked the stock of Google, for example, because it has been opposed to the regime's anti-freedom of speech stance. Barr knocked Disney (DIS) hard for playing ball with the Communists, a charge that's akin to McCarthyism, except Disneyland is more of a U.S. fifth column in China than the opposite. Barr should read Bob Iger's autobiography, 'Ride of a Lifetime' if you want to see how U.S. companies get to play tough with China in a way we can be proud of.
Now, I have made no secret of my desire to blunt the Chinese and I have criticized them for stealing secrets, for dumping goods, for taking away millions of our jobs, co-opting governments worldwide with its Belt & Road Initiative. I wish I had written Vice President Pence's screed against China delivered at the Hudson Institute on October 4th, 2018, especially the part that pointed out their repression of religious freedom. Our government has favored a policy of reckless trading with China. That's over.
But the naming names stuff. We learned years ago not to go there and it is disheartening to see a nascent black list coming out of the Justice Department. I will call it a legitimate threat though, to companies that make money in China, which is an assault, of course on Apple. I say own it, don't trade it.
Fourth, we have some very stretched valuations. There are too many stocks that sell at high multiples to sales not earnings and even if they grow very fast they are now subject to downgrades, as was the case with Peloton (PTON) today. Review your portfolio. Understand that if you have a bunch of stocks that sell at an outrageous multiple to sales - anything more than eight times sales is hard for me to cotton to - you might want to trim or drop one or two of them. You don't want to be fighting too many falling stocks at once.
Finally, five, we don't know whether we will be staying at home to work or not. The banks have reported and the heads of these institutions seem to favor everyone coming back to work. That's put a chill on all of the work at home plays, including the myriad cyber security stocks. I say don't sweat the work at home program. We're not going anywhere until we get a vaccine. Plus the Twitter (TWTR) hack is going to be a boon for all of our cyber faves from CrowdStrike (CRWD) and Zscaler (ZS) to Proofpoint (PFPT) , Palo Alto Networks (PANW) and CyberArk (CYBR) .
All that said, what's the right way to approach the selloff? I would say you buy companies with stocks that are being pulled down even as the fundamentals appear to be quite strong. Abbott Labs (ABT) this morning reported a terrific number with excellent sales for Covid testing. The other day PepsiCo (PEP) nailed a picture perfect quarter. Morgan Stanley (MS) delivered a truly great quarter, the capstone of a program to grow without taking on much risk, a godsend to that group. Johnson & Johnson (JNJ) raised numbers this morning and gave you an excellent forecast which included a move up of its late stage trials for its Covid vaccine to September. Facebook (FB) , Google and Salesforce.com (CRM) all have nothing to do with China and are doing so well you need to leg into them.
And then, watch Amazon. This stock's declined 11% and found a slew of buyers. That's exactly what should happen.
Why aren't I more concerned about the spread of the disease? Because it is now out of the government's hands. In the absence of a vaccine we only have masks as a way to stop contagion, especially when you can't socially distant. In the last 48 hours Walmart (WMT) , Walgreens (WBA) , CVS (CVS) , Target (TGT) , Best Buy (BBY) and Kroger (KR) joined Costco (COST) in insisting you wear masks if you are going to shop at their stores. To the libertarians out there, who would rather live free and die, I have two things to say, these are private companies making the rules, not the government, and ain't you ever heard of Amazon?
I don't know when the sell-off ends. I do know that those who proselytize that stocks only go up will struggle here and those who traffic in stocks of companies that need capital, like the airlines or the cruise ships? You are useful idiots for the investment bankers urging these struggling companies to drill your bids. They see what you are doing and they are advising companies that every time there's a positive vaccine story the obtuse flock furiously and take stock and that's the best time to raise money as Norwegian Cruise Lines (NCLH) did today offering $250 million in shares. Oops, didn't they know about the vaccine?
So, don't panic. Stay the course. Look for the stocks that go down that shouldn't. Yes, you have to know which companies are doing well. But if that's too hard, buy index funds slowly on the way down. Nothing here to watch, move on.
(Microsoft, Apple, Alphabet, Disney, Abbott Labs, PepsiCo, Johnson & Johnson, Facebook, Salesforce, CVS, and Costco are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.)
