After this big run, naturally we heard that there are too many bulls. They have been lulled in, are way more optimistic than they should be and are ready to bail at a moment's notice, like the "wrong" data for the Fed or a sudden mistake by the Chinese that triggers instant tariffs or, of course, by the fabled black swan, whatever that is.
My question is, what are we too bullish about? Which sectors? Are we too bullish on, say, the financials, after last week's run? Hard to tell, when you have incredibly substantive boosts in dividends and buybacks, then there is a big reason to change views to a more positive stance.
How can you think the same about Goldman Sachs (GS) after a dividend boost from $0.85 to $1.25 and a $7 billion buyback -- almost 10% of the company's shares extant? How can that be the same? How can you feel the same way after more buybacks and dividend boosts for Citi (C) and JP Morgan (JPM) ? Sure, you can sell them. And with the possibility of the Fed cutting rates, maybe you should. In the end, though, these stocks got cheaper post C-Car and I can't say that there's all that much enthusiasm: The stocks are simply better.
Health care? Dream on. The managed care stocks have become a proxy on the candidacy of Joe Biden. He does badly in debates -- as he did last week -- they go down. The drug companies? More articles today about how they are price gouging. I think they've become prisoners and are rarely roaring as they used to. I don't think sustained outperformance is in the cards for anything healthcare. Not with the Dems almost universally showing interest in universal health care not universal health insurance.
Retail? There are now four brick and mortar retailers in the country with stocks that seem like good bets: Walmart (WMT) , Target (TGT) , Costco (COST) , and Home Depot (HD) . They are big enough to absorb tariff costs. They are strong enough online to hold their own against Amazon (AMZN) . They could be regarded as expensive, but have you ever watched how eager people are to buy these stocks any time they are down? They are magnets. The rest of retail? Helpless, helpless, helpless, helpless.
Cyclicals? I think they remain trapped by China. There are a couple that seem unstoppable: Honeywell (HON) and Ingersoll-Rand (IR) seem to have no ceiling. But the rest of the group's pinned to their current location? Are we too bullish on Freeport McMoRan (FCX) ? I don't think so. How about the steels? These acted much worse now than before the tariffs. That's saying something. I wonder how many can stay in business right now.
How about the once red-hot aerospace sector? Boeing BA. Need I say more? The worst? How about the papers and chemicals, bedrock of any cyclical recovery? They may be the worst-acting stocks in the entire market.
Oils? Here's a group you really can't give away. Take BP (BP) , which I wish you would. Here's a company with a tremendous quarter, good growth, solid, almost-6% yield and it's cemented to $42 -- except when it goes to $41. Cement galoshes, as they said in Star Trek. They are unbearable to own. Anyone who thinks the buyers are too bullish doesn't have a head on their shoulders. By the way, there are plenty of head and shoulders patterns here, too.
Airlines? I don't think I have seen such sustained underperformance since the days when the balance sheets were bad. Sure, the rails are acting better. But they have changed their modus operandi to precision railroading, which, to me, looks like a method of not giving away services or getting rid of low-margin tasks. Why not buy them? But FedEx (FDX) and UPS (UPS) ? These used to be market leaders because of internet shopping. They are now market losers because of tariffs.
How about the autos? Have you seen those valuations? They are insanely low. Which means that people have zero faith in the future about them.
Utilities? Arguably okay. But what if rates keep going down? Don't you have to own some of them?
Which brings us to the techs. Here, I agree we have some outrageous valuations. Tuesday morning, Mark Mahaney of RBC downgraded two of the most expensive stocks in the market: The Trade Desk (TTD) and Roku (ROKU) . One is the de facto way to advertise effectively on and off the web without relying on Amazon. The other is the best way to play cord cutting. Reason for the downgrades? Less attractive risk reward. I don't know if it sticks. We like them so much.
The internet? The biggest fish, Alphabet (GOOGL) and Facebook (FB) , arguably are at historic low valuations. The ancillary plays, stocks like Shopify (SHOP) , Twilio (TWLO) and Etsy (ETSY) are all very expensive. But how can you get that kind of sustainable growth and not pay up for them?
The semis? They just had the beatdown of a lifetime. Yes, some of them, like Broadcom (AVGO) , were never hit. But most of them have been either held in place or gone down very substantially. The fact that they got such ephemeral relief from the Huawei news is a total testament to their undervaluation.
Tough to value stocks like Zoom Video (ZM) or Stitch Fix (SFIX) or The RealReal (REAL) -- or Uber (UBER) and Lyft (LYFT) for that matter. The IPO class is too expensive AND vulnerable. But that's not a sector, just a subset of technology, especially if you call Beyond Meat (BYND) a tech stock.
Intel (INTC) ? Cheap as I have seen it, even as it has major problems. Yes, Advanced Micro (AMD) is expensive, but why should it not be? What happens if the Chinese okay Nvidia's (NVDA) buy of Mellanox Technologies (MLNX) ? To the moon, I say.
Micron Technlogy (MU) ? Even after this run, it sells for just 6.5x earnings. Expensive? You tell me.
Software's got some expensive stocks. The cloud kings are vulnerable? Splunk (SPLK) , ServiceNow (NOW) , Salesforce (CRM) , Workday (WDAY) and Adobe (ADBE) all seem very expensive. They are definitely vulnerable. They could go down a very big amount and not be cheap. But hasn't that been the case since the bull market started? I think that these are stocks, though -- including the smaller fellow travelers like ZScaler (ZS) , Okta (OKTA) or Zendesk (ZEN) -- that could "blow up."
Again, though, these have permanent overvaluations with periods of painful swoon. If you believe we are too bullish, short them. I wouldn't. They have the possibility of going higher, much higher, if the economy shows signs of slowing. I would say the same thing about any Software as a Service stock. Then again, Oracle (ORCL) and Adobe's earnings show the perils of being short the group.
Then there's fintech. I think fintech is the most overvalued section of the market: Visa (V) , Paypal (PYPL) American Express (AXP) and Mastercard (MA) . But they are viewed as secular growers. Every time they get hit, the buyers come out of the woodwork. You want to go against Fleetcor Tech (FLT) , as someone recently did? You get run over, plain and simple.
There are other pockets of overvaluation. Many of the biotechs. But then again, big pharma's been snapping them up. They, like the Software as a Service stocks, do seem natural to collapse. They are just too dangerous to do anything but buy puts on.
Still, go over the preponderance of sectors and I defy you to tell me that bullish investors predominate. Again, there are plenty of overvalued stocks in the market. I have keyed on them.
So, sure, pull in your horns because there's too much enthusiasm. I say there's too much enthusiasm in one place: a subset of tech that is expensive and then swoons time and again, as well as tech IPOs, which I abhor.
Otherwise? You are boxing with phantoms.