Big institutions don't tell you what they are up to. They are secretive and their people are always quick to say that they don't want to talk individual stocks, just broader trends.
But tonight I want to tell you how some institutions work and why what you see on your screen often is the result not of what the Fed said or what the retail sales or housing numbers are but what happened at that morning's research meeting. These meetings are the reason why we got a rally today and you need to know how this came about so you can anticipate it yourself.
Now, I know that today seemed like it was dominated by the amazing Snowflake (SNOW) deal, the biggest software deal in history, and as someone who helped bring the Microsoft (MSFT) deal to Goldman Sachs 35 years ago, I know a big deal when I see one. I had a piece about this miraculous deal earlier in my feed.
I want to take you behind the scenes of what happens each morning at large firms and why it can often lead to a rally. Each major investment house has a morning meeting where research analysts come on and talk positively and negatively about stocks and groups.
Ever since the pandemic began almost every piece of research that came out lowered numbers for individual companies and suggested that things were going to get far worse than we thought. Made sense. You lock down the nation, you change the whole notion of the American country. We are a nation of spenders, a bunch of good timers who really know how to have a tremendous time with the dollars we make from the service economy. Suddenly we go from not being able to go eat and drink and laugh are darned fool heads off at movies or cry in the theatre or go into hock at retailers. And we have to focus on the four walls of our rooms in our houses and apartments.
The instinct from the analysts was that this would shut down everything.
That instinct was wrong.
There's no better example of the changes than e-commerce and last night FedEx (FDX) lit up the sky with its unbelievably better than expected quarter based not just on price increases that stuck but from immense volume. How much? FedEx thought the company would be shipping 100 million packages per day by calendar year 2026. Last night it said that number will be hit in 2023. That's astounding and it assumes that whatever the heck we were doing with e-commerce before the pandemic is never coming back and, if anything, the percentage of retail as e-commerce has gone from 15% calendar year second quarter of 2019 to 21% this year. That's incredible.
And here's the rub: executive vice president Brie Carere said on the call that "U.S. spending that would normally have gone into services has shifted towards goods, spending boosted further by pent up demand." Retail sales, she said, are growing year over year, e-commerce is "booming at holiday levels," while the service sector "severely impacted by the pandemic and high unemployment rates, continues to weigh on growth."
So the analyst who covers FedEx goes over what's known as the hoot and holler or the squawk box and tells the sales people that she is boosting her price target FedEx because of what I just said.
That spurs lots of thought among the buysiders. First, the idea that we may not be as much as a services economy any more is dazzling. Can we really be a manufacturing nation now or is the service economy so weak that we need more stimulus, or both? I think the Fed chief made me feel that the two sides in Washington have to agree to a stimulus to save the service economy - good for the overall market and that manufacturing stocks must be bought. That's how Boeing's (BA) stock can go up on a day when the House released a horrendous report about the company's problematic culture. It's how the transports can hit an all-time high, a great predictor of the future.
Next up, we had a number of positive calls about housing, some spurred by what we heard from Stuart Miller, the executive chairman of Lennar (LEN) , the giant homebuilder, with a stock that got crushed even though it reported a terrific quarter. The analysts en masse got behind it and the stock soared, taking the whole cohort with it.
Again, just like it shocked analysts that we seemed to have become more of a goods economy than a services one -at least for the moment - these housing numbers just keep jarring those who cover the home business. We had the incredible paradox of a high single digit unemployment and incredible home building numbers. That's not supposed to happen so the rally gets delayed until the sell side explains to the buyside and the internal research people figure out that the pandemic has changed the whole shebang. Those who kept jobs aren't waiting for a vaccine. They are putting roots down in new homes where they don't have to commute and they ain't coming back. Those homes have now become offices and homes. They are being re-outfitted. That's why Miller could say something so counterintuitive that I felt like a wind blasted in my face: the pandemic has created a housing boom.
We have a boom in packaging, we have a boom in housing and yet we still have a weak economy that needs help from Washington.
It's too hard for most managers to understand but they take action this morning and they snap up all of the transports and homebuilders they can.
We have written off all sorts of ne'er do well apparel and mall retailers, retailers like Coach which is now known as Tapestry (TPR) . Amazingly we got an upgrade of this cellar dweller and it worked. The stock became one of the biggest gainers in the S&P 500. That fired up all of the other retailers that hadn't been doing all that well, think Kohl's (KSS) and Nordstrom (JWN) . I, for one, say stick with high quality, stick with Lululemon (LULU) but the Tapesty tout worked, and it ignited the group.
Finally customers of Morgan Stanley (MS) got to hear something today that was amazing: Larry Culp the CEO of GE (GE) , always one of the top 10 stocks traded on Robinhood, told clients that GE sees positive cash flow in the second half. I can tell you that this will light up the desks tomorrow because no one I know is thinking that's going to be the case. It also means that you want to buy the GE analogues which means buying Raytheon (RTX) , 3M (MMM) and Honeywell (HON) .
Now that's just a sample of what was heard this morning. It's how these manufacturing and transport stocks could keep everything going, bucking even a downbeat Fed Chairman who sounded like he's fed up with the name calling and the infighting - hmm he's like me! The techs couldn't rally because of some technical problems in the market. (see earlier piece) But the research firms today put something in context that seems almost impossible: we are having a boom in the midst of a terrible recession and its in the goods side, not the service side. If we get stimulus we could get both sides working. If we can't expect more days like today with stocks you never thought could soar flying high in the sky, and the stocks that had let us be stalled momentarily as they get sold off to buy more popular stocks like Snowflake.