Finally, we bust the pattern.
Finally, the joy of the opening didn't turn into sadness and remorse a few hours later. Sure, it might be a relief. In fact, it might be just a relief rally. But it got me thinking if we could somehow wrench out all of the optimism, we might actually have a game plan to rather the bullish forces -- and resume the climb.
Now, nothing is that simple. We can't just have a couple of things go right and then we have something to hang our hats on. There are too many uncertainties including the fact that for 20 years this period, these next few weeks, favor the bears over the bulls.
But I want to lay out a recipe -- a long, complicated recipe -- about how we can go higher and a checklist of what you see must go right before the advance has staying power. Here's my list of 15 positives that must pan out to reverse the market's direction for more than a day or two:
- We need some good news on the employment front. Last month's weaker number has dogged us ever since its report. No number, none, is as important as the non-farm labor report, as my friend and writing colleague Matt Horween reminds me, and if we get a big number, then we know that the unusually high benefits were the cause of a lot of the unemployment and wage inflation may peak out.
- Inflation must moderate. Anyone who is planning the budget for next year at any industrial or retail level knows all too well how high prices keep going up. At this rate, small businesses can't afford to expand and big businesses have to lay off. If costs to moderate, which may come from the end of storm-related damage, then we could go a long way.
- Chip shortages need to abate. It's become pathetic how hostage we are to this industry, which historically has made high performance chips like those needed by AMD (AMD) , Intel (INTC) and Nvidia (NVDA) because that is where the money is. They are now supposed to make downscale "full featured" chips that go into simple parts connected with host of industries like the autos. But the margins are small and its not nearly as lucrative as making chips, say, for the data center. No one is looking for this to happen. Most, including Cisco (CSCO) CEO Chuck Robbins, think that this shortage is far from over. That's why it would be such a shocker to suddenly see relief in the basic building blocks of electronics. Now that would be a big surprise.
- Supply chains start to ease. Right now, getting something from point A to point B is a nightmare, because we don't have enough drivers. We can't get the packaging we need, because demand is too great and factories are still shutting down, because of COVID outbreaks. The inability to put something into expensive plastic, the rising cost of oil, the force majeure for paint ingredients, the endless wait for fixtures and washers and dryers, they are freezing the country and most thaw if business is going to pick up.
- The ports have to get better. It's hard to believe there is so much loot coming from East Asia, but it's not getting here on time. Some companies like Nike (NKE) or even Starbucks (SBUX) maintain good franchises, but what good is that if you have a paucity of buyers?
- Earnings season kicks off and we need to hear how supply chain problems are being ameliorated. Anything along these lines would ignite the market, but remember it will be a long time before these problems calm down.
- Companies need to say that the input rise has, at last, run its course. Can you imagine a plastics company saying that? How about a decking company, or plumber or someone who else who has been clubbed by these costs, perhaps most of all a supermarket or retailer who has to cut price to keep prices from being too high. It could happen, though, and really surprise people.
- We need kindergarten through 12th grade schools to open and stay open. That frees a huge among of the work force, anyone who had to stay home to take care of the kids. I think it could help bring down labor costs.
- Hospitalizations definitively must decrease. Maybe it's employers like Raytheon Technologies (RTX) or Disney (DIS) requiring vaccines. Maybe it's because we get a semblance of herd immunity. Maybe its because people are starting thinking of the shot as a souped-up flu vaccine. Maybe the Regeneron (REGN) drug keeps people out of the hospital. A definitive decline would explode this market.
- Air passengers increase. This market goes down every time we hear of a decline in passengers. That could change as people feel more comfortable and international traffic returns.
- We are a travel and leisure country, so we need hotel occupancy to improve. These are easy to track numbers and they signal a lot of different kinds of spending, including on shopping and restaurants.
- We see rising interest rates caused by more economic activity, not inflation. Do not fear higher rates, fear rates that go higher for the wrong or nefarious reasons.
- Underwritings slow down and we get higher quality deals like Dutch Bros. (BROS) that are liked and not flipped. What a treat that would be. Fewer deals, no spacs, no giant venture capitalist bonanzas, all important to stop the decline.
- We see more buybacks like Microsoft (MSFT) ; we need more buybacks that show that the balance sheets of corporations remain incredible.
- Washington gets off the radar screen. We have started to come to a realization that President Joe Biden is not all that stock market friendly. We should have figured that, as he was never a big fan of it when I talked to him. He is one of those people who associates capital gains with the rich and out of touch. The more off the front pages Washington is. the higher we go.
Now, we do need to see lots of negatives pan out. We have to be more negative. A rally like Wednesday's will attract too many buyers. Remember, it was led again by energy, which is a terrible leader. But tech moved higher and to say that can happen is certainly good news.
The difficult part of all of this is that we need all 15 to make me feel like I can calm down about this weaker period. If we get them, though, look out. The upside awaits.