Maybe there will be a vaccine, right around the corner. No, maybe it is further out. Not enough time to spare us from a recession.... Maybe it doesn't even matter, and, with deaths down per case, we are over the hump. Or, perhaps, because of the spike in Covid-19 illnesses in the South, there will be no sports, no going out, no nothing and millions of jobs will be gone.
There. I just outlined every camp that goes to war every day and because there's a limited amount of funds available for risky assets like stocks, you can't have winners all at once. The winners are financed by the losers and camp cash gets depleted all at once.
How can you tell which camp's winning and which is losing. Easy, the stocks tell you. I like using a sore thumb index -- in which stocks stick out like a sore thumb. Let me give you today's sore thumbs, so you can spot the rotations driving this market.
First tell, McCormick (MKC) . The spice company is roaring to a new high and to get there you have to have fervid camp followers willing to pay any price. What do we know about McCormick? Simple: When it reported it was the blow out of all blow outs, hotter than the Frank's hot sauce, hotter than McCormick's Crushed Red Pepper. But after a spike up five to open, McCormick nose-dived and barely finished in the black. What did it do wrong? Was it the conference call? Was there a slowdown in the aisle space gained in the supermarket from French's and Franks -- what an acquisition that was?
No, the ultimate stay-at-home recession stock happened to report on a day where America was re-opening and the disease seems to be under control. It's the perfect sore thumb to detect that the recession camp is now in ascendance coupled with the bad part of the stay at home fallout, the "can't go out, must cook and bake at your dwelling lest you get Covid-19." When McCormick spikes you can count on 15 million people being unemployed, because the restaurants and bars simply can't open. Yes, that many work in that industry. It's also a sign that a majority of today's money is casting its lot with the no stimulus theory, because bountiful unemployment insurance is about to diminish. No additional stimulus could be a disaster for the economy.
Second sore thumb? Clorox (CLX) . This one's kind of like Dylan's "You don't need a weatherman to know which way the wind blows." This stock soars when things are just plain in the economy and it screams that there will be many more Covid cases ahead, so be ready. You hate to see this sore thumb, because it's not just health, it's fear. The stock of Clorox has been a sore thumb the whole pandemic and when it rallies you know that some region has lost control of the disease.
Thew whole drug complex jumped hard today, including Johnson & Johnson (JNJ) , which reports Wednesday. The biotechs, true slowdown stocks, did a bang-up job led by Regeneron (REGN) , which, yes, I still expect to win the race both for the vaccine and the best treatment once you catch Covid.
The fourth sore thumb? It's a new one: Ncino (NCNO) , a financial tech company that helps banks streamline processes and become less complicated, less siloed. Why does this $7 billion company matter? Because it jumped 53 points on its first day of trading, an incredibly successful launch. This market never has enough money for both banks, laden with potentially bad loans, and fin tech, which has no mortgages, no home equity loans now debt exposure whatsoever.
It holds the key to today's earnings quandary, the one that says it's important to buy the best bank of the three that reported today: Citigroup (C) , JPMorgan (JPM) and Wells Fargo (WFC) . The answer? None of them. They have much too much economic risk vs. this pristine Ncino fin tech. That's why JPMorgan, which truly reported a heroic quarter, could barely stay up after trading as high as $101 in early trading and Citi, with a pretty good quarter, so its stock shelled. Wells Fargo? Don't even ask. When the head of a major bank takes an axe to his dividend -- an 80% hack -- and pronounces his company's quarter disappointing, go grab some Encino with the proceeds of a sale of Wells. All of the banks stressed that they don't really have any sort of crystal ball about what is happening. With the exception of trading they are talking about stagnant growth. The franchises may be valuable -- Citigroup, for example, sells at a ridiculous price to outs tangible book value, $51 vs. about $71, but it's not allowed to buy back stock and while it represents great value this market eschews value at every turn. It wants growth. Period. End of story.
If there's any doubt to this, you can look at another, gigantic sore thumb, Mastercard (MA) , the ultimate financial without finance, which soared on a conviction buy nod from Goldman Sachs.
Finally, to round things out, Walmart (WMT) and Costco (COST) lit the sky up and these two are the ones that say, lookout, another lockdown might be coming, because they are essential service stores. They were the brick-and-mortar stocks winners in the national clamp down.
Don't look now, but they are back. Lockdowns are terrible for our gross domestic product. But not for other countries' GDPs, which is what's making the stocks of Union Pacific (UNP) , Caterpiller (CAT) and Freeport-McMoRan (FCX) are roaring, despite the recession soar thumbs. Remember, Union Pacific is a west to east rail and you ship from China now for Christmas. Caterpillar gets its own share of China business, although oil is more important these days. Oil breaching $40s works for them. Freeport? China consumes 50% of the world's copper.
Now, remember when I said there's not enough money to slake the supply from other groups, when we get the lockdown thesis? That's why you saw the Nasdaq separate itself from the S&P. Those stocks need two things to roar: a slowdown and a lack of inflation. We have the first. But the second? Oops, look out. The consumer price index came in at plus .6%, way too hot to say we have no inflation. Why do we care about that? Because then you have the highest growth stocks, stocks that sell at what we normally would consider outrageous price to sales, not even price to earnings, they tend to wilt with inflation, because inflation erodes the value of long-term payoffs. That's how Amazon (AMZN) could be down huge while Walmart and Costco zoom.
Now the stupendous thing about this market is its ability to change stripes. There could be a whole new set of sore thumbs tomorrow. But with this session I have to wonder if the baton is switching from Nasdaq leadership to that of the stodgier S&P 500. If that's the case, then you can bet that the real stars, the clouds, the companies that help e-commerce, the cyber securities, will take a back seat for a bit.
Odd, of course, that you can buy the consumer-packaged goods stocks known to thrive when the stay-at-home and recession economy thesis comes to the fore can co-exist with some of the bigger industrials. Remember, though, the industrials that ran today are global, and while we are mired in our own pandemic, the rest of the world's flattened the curve and returning to growth.