Oh, that's right, it's a slowdown. There have to be reasons for stocks to go up besides the tailwind of an economic uplift because there are no tailwinds. Sure we are seeing the lifting of stay at home orders all over the place and we had great hiring numbers last Friday. But the fact is we still have 13% unemployment in this country and while we sure hope that the opening of America produces a ton of jobs, the jobs are unlikely to be in the areas that have been the subject of much of the buying.
Let's take the two most exciting areas in this market: airlines and cruise lines. Until today these seem to be hellbent to get back to where they were before the pandemic. You could see the stocks go up well before the market opened as uninformed investors grabbed stock in these two groups betting on one thing and one thing only: that someone else would come in and take them out of these stocks.
This game worked for a while. But today it stopped. Why?
Because this process is about finding a fool even greater than the people who were buying these stocks and we just plain ran out of fools.
Now unlike most of the scolds you read and you hear, I do not criticize those who are involved in this ultimately futile process. I just want them to be better at what they do. For example, we have seen endless buying in American Air (AAL) , buying that took the stock from $10 to $20, where it was before the pandemic broke out.
But American owed $34 billion in debt, $10 billion more than Delta (DAL) or United (UAL) , and had to take down another $4.75 billion in CAREs Act government money. It is burning about $70 million a day and is trying to get down to $50 million a day by the end of this month.
I understand how gamblers might be attracted to the stock. It's the lowest dollar amount stock of the airlines, and that's always attractive to speculators, and it also put out a release entitled: "American Airlines Increases Domestic Flying for Summer Travel Season: Begins Reopening Admirals Clubs and Increases Flexibility." Why not? In May American carried 110,000 people a day, a 55% load factor, up from 32,000 in April, a 15% load factor. Remember that's domestic. International travel continues to diminish.
Sounds pretty good, though, right? Now consider that the year before the company carried an average of about 500,000 people.
No wonder that when Boeing's (BA) CEO recently told the Today Show that a major carrier would fail, many thought he meant American give the high debt level and the dearth of passengers.
And while airliners are quick to tell you that they have better air circulation than most buildings, the simple fact is that's terrific unless you are sitting next to a sick person. A sick person knows to stay home and not go to work because he will get his co-workers ill. There can even be consequences if you go to work sick and don't tell your bosses.
But on a plane? You have people who are flying because they are sick and they could be next to you. A mask will not stop you from getting covid if you sit that close.
I go into all of this because American is the classic kind of stock you would buy if business were to catch fire. A filled plane makes a ton of a lot more money than a plane that is only 55% filled and when all your planes are filled you are making a fortune.
But when you are in a recession, or even coming out of a recession, as many think we are, the tailwind won't mean that much if at all, especially when there is still a lot of justifiable covid fear of flying.
So, what do you buy if you are feeling better about the economy's descent, which is bottoming out but definitely is not producing enough meaningful wind that can be at the back of companies' despite the runs the economically dependent companies like American Airlines have undergone?
You buy the stocks of secular growers, the ones that have particular engines developed by themselves that allow them to fly into headwinds without a problem.
Which ones stood out today? First, let's start with Facebook (FB) . I have been a huge supporter of Facebook ever since it stopped being embroiled in politics and started recognizing that its real constituents, the millions of small and medium-sized businesses, who have started on or have grown on Facebook and Instagram, need its help. What's the point of wrangling with politicians because you are on your own, when you can have millions of ambassadors, your own clients, who don't want politicians meddling with you, because it might hurt their businesses.
Right now Facebook is launching Facebook Shops and it is turning out to be a gigantic hit as described by Heather Bellini, the crackerjack software analyst from Goldman who came out with a fantastic piece of research this morning explaining how much business Facebook is going to get from its small and medium-sized business initiatives. The stock's been flying ever since they announced the initiative but it is only now that analysts are recognizing how huge it will be now that so many companies have to have an omnichannel given the tenuous nature of their brick and mortar operations.
Or how about Apple (AAPL) ? The stock's been running, not because of the reopening of the retail stores or because of some surge of sales in China. No, it's because Apple Pay is taking off given fears of covid catching from credit cards, key pads and cash. And, the service revenue stream is going to be up huge, much more than people are looking for.
Then there's Advanced Micro (AMD) , the S&P's biggest gainer. Why? Because Nvidia (NVDA) selected its chips for its next generation artificial intelligence system. AMD and Nvidia are opponents in the data center. It's another big win for AMD. But lest we bury the lead, it's Nvidia's system, hence why its stock burst higher, too.
AI does not need a tailwind.
AMD is also getting a boost from the possibility that it is being built into some Apple products instead of Intel (INTC) . Again, a share win, not an economic wind.
Finally, two firms, Bank of America and Wells Fargo raised their price targets for Amazon (AMZN) to $3000,with notes that shower praise about how Amazon's talons are in to the consumer. Wells says, "we believe that Amazon's continued buildout of last mile fulfillment capacity and a gradual return to more hectic work and school schedules among consumers will likely shift momentum back toward rapid delivery-Amazon's one day Prime and Prime Now-from competitors' store based fulfillment options." In other words, Amazon spent a fortune during this period and has kept its lead ahead of brick and mortar omnichannel alternatives. Bank of America says the exact same thing, that the money Amazon spent on fulfillment this year typically precedes accelerating unit growth so they are looking for increased revenues and earnings. Again, not economic tailwinds, but tailwinds of its own making.
We know there is a daytrade frenzy to buy the worst, to deify the most loathsome oil companies and tankers, to apotheosize the bankrupt rental care companies, to worship at the altar of cruise lines that can't cruise. These don't just need tailwinds, they need Category four hurricanes to move.
But Apple, Facebook, Amazon, AMD and Nvidia, they don't need no stinking tailwinds. They create their own and ride them to much more green pastures.