So, the buyers just came right back. They couldn't resist. And why not? Once the sellers ran out of ammo, the buyers ran right back into the breach.
Now, I think it's easy enough to say that things are better than we think. If that works for you, then more power to you.
But it doesn't explain the broad base of the rally. We had a dramatic decline in tech last week and Tuesday, and tech roared higher Wednesday. What shocked me, though, was the incredible buying in the industrials, in the consumer stocks and in the rails.
One of the most difficult and humbling aspects of this business is to admit that you don't really know why everything rallied. We tend to default to saying it's the Fed buying, making sure the rally continues, or that there will be a stimulus package. We say that it's the re-inflated bubble. Or the by rote dip buyers. But I think it's something different.
First let's dispense with what we do know. There is a company called Qorvo (QRVO) , it makes semiconductors for all sorts of cellphones. It has about the broadest array of product for both 4G and 5G phones. You may not know it, but it is perhaps the most ingrained telecom semiconductor company out there. It's also a part of the Wi-Fi explosion and the Internet of Things.
Tuesday night it announced that things are sharply better than expected. I mean, like monstrously better. The product portfolio is so broad that I am just going to list who is a winner if Qorvo's a winner: first, the traditional cellphone semis: Skyworks (SWKS) , NXP Semiconductors (NXPI) and Qualcomm (QCOM) . Then the industrials, Texas Instruments (TEX) , Analog Devices (ADI) . You can extend it to two key semis when it comes to the entire market: Advanced Micro Devices (AMD) and Nvidia (NVDA) . Why not add Broadcom (AVGO) , which had a fine quarter but reported last week on one of the worst days of the downdraft. And how about Marvell Tech (MRVL) , an important 5G play that reported a huge quarter but, it, too, got lost in the tech plummet. It did have an amazing quarter.
Then there's the end market: cellphones themselves. In the last few days, we have heard multiple bearish analysts talk about Apple (AAPL) and it's been crushing the stock. But if Qorvo says that cellphones of all sorts are incredibly strong, you don't out think it. You buy Apple. And that's what people did.
Yep, the Qorvo pin action yielded a couple of bowling strikes that were totally unexpected.
It's not just hardware. Two analysts made a stand, telling you to buy Adobe (ADBE) ahead of next week's quarter. One analyst says something good. So what? Two say something great ahead a few days before an important company like Adobe reports? That's a total greenlight. Adobe is all about digitization. If you think Adobe's going to have a good quarter, you can surmise that so will ServiceNow (NOW) , Salesforce.com (CRM) , Wix (WIX) , Shopify (SHOP) .
Then there was a very big call by Morgan Stanley about Microsoft (MSFT) entitled "Solid Returns in Times of Uncertainty" that postulated a potential dividend increase from Microsoft during mid-September. Normally who cares? But this is not a normal time. We are getting dividend suspensions left in right. Record levels. So a dividend increase from one of the largest companies on earth? That makes you feel that the valuation conundrum-that all tech stocks are too expensive-can be resolved positively.
When the action is enough and tech stocks are positive, we get a circle back to what was tremendous. Zoom (ZM) and Crowdstrike (CRWD) -- the No. 1 and No. 2 beat and raise stocks in the entire market. I had a conversation with David Faber on "Squawk on the Street" on Wednesday morning, and I said that Zoom's stock down 30% is something I would buy if I could. That's too big a discount for a company that has captured the hearts and minds of all stay-at-homers around the globe. Crowdstrike was on Tuesday night on "Mad Money," and their business is just on fire, because of the work-at-home crowd, which is so easily stolen from.
Video conferencing and cybersecurity, bedrock themes, all good.
I don't know if you listened to Ned Segal, CFO of Twitter (TWTR) , too, but he told you that business continues to be strong during August and that "social" has exploded. Do you think it's weaker at Facebook (FB) ? I don't think so.
Finally, in a kiss of death for the sellers, we got the obituary that buyers need to put money to work, a New York Times article with the premise: the stocks we always talk about, such as Microsoft, Facebook and Apple can't be owned because they are too lofty.
Wait a second, we just got a 10% decline, the fastest we have ever had. We don't need to hear that we are about to have one. We just had one.
I think the tech sellers exhausted themselves. They were spent. Or they got margined out. They finished selling and the game was filled by buying.
The tougher ones to reconcile? The industrials and the retailers. Like I said, we are in a humbling business. I could not find a soul who could explain to me why Caterpillar's (CAT) stock hit a new high today. CAT's more levered to energy than China and energy is lagging.
The rails were insane Wednesday. Could it be the note we got from a research firm that Federal Express (FDX) could beat the estimates? Is it that China's very strong and there's a lot of intermodal traffic? Again, no particular reason.
Or how about Home Depot (HD) , Lowe's (LOW) , Walmart (WMT) , Costco (COST) , Target (TGT) ? I can grasp at straws: California's a huge state for retailers and its Covid cases are plummeting. Interest rates remain low. Or, did these companies have an amazing Labor Day and we just don't know it. Or, at least, many of us don't know it.
It's frustrating to see so many winners without being able to pin down exactly why. We have plenty of people now who think the economy is awakening. They were in their buying. We have just as many who think that Covid's coming right back. They were buying.
But the main takeaway you need to know is that there was a tremendous amount of S&P 500 selling over the last three days which, of course, includes a hefty amount of tech, and whoever was doing that selling, perhaps a scared hedge fund or hedge funds, perhaps some firm that was margined to the hilt and got blown out leaving a vacuum filled by those who have simply been waiting for the shelling to stop.
I don't subscribe to being able to pin the tail on every donkey. Sometimes it comes down to sellers being exhausted or big managers who need to lock in gains, or just that one big buyer, perhaps Softbank, which was rumored to have bought somewhere between $4 billion and $5 billion dollars in calls, who got cashiered, because of the decline and once the ill-advised bet was unwound, there simply was no longer stock for sale.
Maybe it doesn't matter. I expect the Apple bulls to re-surface Thursday, the Zoom acolytes to speak up and the semi analyst to raise numbers across the board because of Qorvo. We will solve the mystery of retail with number bumps from a strong Labor Day and someone will boost United Parcel Service (UPS) or Union Pacific (UNP) or Norfolk Southern (NSC) or any number of other transports. Who knows? Maybe we will even find out why Caterpillar's (CAT) hitting a high.
Only then will we see what this rally's made of and whether we can return to where we were a week ago.