We've got the grand confluence going on Thursday, and people seem confused and stymied by the sudden lurch out of the industrials and banks and into techs and retail. It seems to make no sense to the majority of investors. But, ah, you have come to the right place, because it is my job to bust Wall Street gibberish and hear the stock whisperers and translate their every move.
So, pull up a chair and let me tell you what drives these insane, some would say, inane moves, in a way that you can understand them and even profit from them.
First, we have to cut through the nonsense that we hear all of the time from the ideologues and American oligarchs that wanted higher interest rates, because they fear long-term inflation that will erode their billions.
These are the people who think that Powell's a patsy. These are the card carrying kleptocrats who want the Fed to stop trying to help African Americans and Hispanics find jobs, because, as they endlessly say, inflation really hurts them in the end. That's false. Inflation hurts people with big hoards of dough. To admit that is to break with tenets taught in schools for years. I know. I had Galbraith. I had Otto Eckstein. I read Samuelson. I know what they think. And their thinking is wrong. Powell's figured this out, too. He knows that businesses, particularly Black- and Hispanic-owned businesses are more likely to get started before a rate cycle begins than after.
But for all of their handwringing that Powell didn't do enough, the fact that he pulled forward the start of the rate hikes got interpreted by big money as a clarion call that this is a new Fed - even though it isn't - that's going to get tough after all. I wasn't sure this camp really had the horse power. The bonds put the lie to that, though, with a stunning session where they went flying and yields went crashing. The bond buyers collectively decided that Powell meant business and they couldn't get enough of them.
When rates go up like that - and remember the bond market is much bigger than the stock market - then stock buyers think, uh oh, that big cyclical run, the one that was going to be allowed to continue because Powell is so easy and won't even acknowledge inflation, that's over. That's how you get Caterpillar (CAT) down 7 and almost forty points from its high. That's how Freeport-McMoRan (FCX) , the copper company, drops more than 10 points from $46 to $35 in a month's time. It's how anything connected with commodities is plummeting.
Now, those who are so fretful about commodity pricing, I have good news for you: The stock market is saying that the inflation is not only transitory, but it has already peaked. Could the market be wrong? Sure, but the probabilities of wild and crazy inflation are now off the table. You wouldn't have such a collapse in every stock related to commodities at the same time as interest rates are crashing, if it weren't true. Inflation of all kinds are taking care of themselves, just as Powell said. There are some that are intractable, but I have a solution for those, articulated earlier.
Remember I told you that without oil going lower we can't mount a traditional rally? Oil has reversed and reversed hard as we are beginning to hear that the Saudis are ready to start boosting production. This level has been terrific for them, but any higher and the U.S., which his down about 1.9 million barrels a day, is going to start drilling and pumping from the Permian. If that happens, then oil will go down. The Saudis want to keep oil high enough to make a ton of money but low enough to keep the U.S. from expanding its drilling, which they have not to date. I bet we find out Friday, when we get the Baker Hughes (BKR) rig count that, at last, there is more drilling here. That would make it so the Saudis have to make that decision unwish by putting a lid on the product. There will be no oil supercycle.
So what about this insane move into tech and fin-tech? As easy as pie, with an "e." The industrial sellers are bailing, because they are convinced that Powell is now getting tough. That means you need to buy stocks with growth, no matter what. That means you have to buy Facebook (FB) , Amazon (AMZN) , Apple (AAPL) , Netflix (NFLX) and Alphabet's Google (GOOGL) , or at least an exchange-traded fund that houses them. You have to buy Microsoft (MSFT) . You really have to buy semiconductors that supply the hardware that helps power FAANG, Advance Micro Devices (AMD) , and Nvidia (NVDA) . All of them will outshine any cyclical in a slowing environment. Facebook has triumphed over its critics and is a great bargain to advertisers. Amazon is going to have a super prime day. Apple's working the kinks out of health care. Netflix has a better slate now that COVID is running down and Google has strong business everywhere and a new sense of spending discipline that may or may not mean Waymo, the self-driving company, goes on its merry way. I know that there's no M in FAANG, but Microsoft (MSFT) wasn't going to miss out on this rally, either.
At first I thought Nvidia soared 5%, because my wife, Lisa, is getting a new rescue dog and she has agreed that it, too, could be called Nvidia by me. No, it's just that the company got a recommendation today that says growth is accelerating. Plus people are coming around to thinking that Nvidia will get Arm Holdings. They are thinking the same thing that AMD is about to get clearance to buy Xilinx and it will no longer be pigeon-holed as a competitor to Intel (INTC) .
All the fellow traveler cloud kings and cybersecurity stocks held hands and rallied, too. You know we just had Twilio (TWLO) on "Mad Money." Great story. Natural flier. Up huge.
I know there are people who say that the homebuilders are going to be squeezed by inflation, but that's a tough road to hoe when you have one of the biggest, Lennar (LEN) , report that it had great sales and terrific margins. I know that mortgage rates have a little spike but with bonds up in price and down in yield that's over. Let's see: They can weather inflation, rates are down so affordability is up and you can buy buy buy.
The market's stubborn. The buyers think that the economy is slowing, which means there will be no near-term rate hike, something the banks need to save their quarters. So, sell, sell, sell. And go buy the fintechs while you are at it: so Square (SQ) and Paypal (PYPL) go crazy.
Now, does any of this make sense? Sure for today. I say for today, because some of this buying is big bad event buying meaning that the buyers were waiting to see what the fed did before they swarmed in. And we know we are in a seasonally weak time so I suspect that some of these tech stocks will give up their gains. However, the buyers and sellers have spoken, Jay Powell means business but not any time soon, and the hyper inflation theme is now off the table where it should have been all along.