Where is the long-awaited rollover? Where did it go?
Or was today just a reprieve, a day where we think we get to avoid a government shutdown and perhaps we get a trade deal?
Both sure contributed to this strong day.
It is amazing to me how the pendulum switches from optimism to pessimism and back again without any irony or skepticism.
The binary nature - it's terrific, it's abominable. It's going to soar. It is going to crash. The change in the market's mood minute to minute is insane.
How come it is so extreme? I think it's because of the prism, the prism of gloom versus hope and the gulf is the furthest I can recall.
I've been searching for the best ways to quantify the size of the gulf and I think I've come up with some prime examples that explain the dichotomies.
The most stark example: the amazing comments from Morgan Stanley equity chief, Mike Wilson, yesterday, who issues an extraordinary prophecy: "We are increasingly convinced that consensus earnings expectations for 2019 have further to fall and that the optimistic uptick currently baked into fourth quarter 2019 estimates is unlikely." He goes on to say: "A modest further decline in earnings will deliver the earnings recession we called for."
Ouch.
That's incredible. An earnings recession? While Wilson says that the market could still move up, I have to tell you that an earnings recession would more likely give you nasty returns.
Now, this is not my view. In fact, I would normally say that's a ludicrous view...except for this salient fact, of all of the Wall Street strategists CNBC tracked in 2018, Wilson was the most accurate.
Who am I to disagree with that empirical judgment? Who wants to go against that triumph? I find it daunting.
But then I come back and say, wait, if we get no government shut down, and, more important, if we get a deal with the Chinese that ignites both of our economies, then I think Wilson will be wrong. I think we could have an earnings gusher that would force Wilson and many of his bearish ilk to scramble for cover.
Then there's China. We've been over the two camps, the hardliners and the soft-liners and they are simply by any stretch of the imagination totally incompatible. The Kudlow-Mnuchin team as focused on trade, on actually doing more business with China. The Navarro-Lighthizer team is about stopping the Chinese from becoming the dominant power in the world; it's not about trade, it's about rolling back their ambitions. It's about no stealing of intellectual property. Sure, they want to do more business with China but they want China to stop destroying what's left of our industrial base.
But those antithetical views aren't what's driving the volatility here. It's the president. He hinted today that a deal could be in the offing, the upcoming talks will be fruitful. Buy, buy, buy. But then he says, wait a second, those tariffs are going to go up in March. How the heck is that possible? How can he contradict himself so quickly? Or is it all a negotiating ruse?
It wouldn't matter as much if it weren't for the fact that the identical stocks you would buy in the president's initial views would be what you would sell with his second take.
Then there's the bizarre oppositional thinking about oil. Oil's bouncing daily and it pulls the S&P in a ridiculous, counterintuitive way. The Dow went down for five straight days, in synch almost entirely with oil, as oil is thought to be the only true barometer of world trade. Oil is thought to go down because there's not enough demand. Today though, oil screams higher: demand is back and a China deal could be fantastic for world growth. Mind you all of this back and forth occurs within a range of just a couple of bucks.
We've got a gigantic budget deficit yet interest rates have fallen dramatically. Every other time I have seen a deficit that's large - although nowhere near as large as this one - I have seen interest rates ratchet up and the stock market go down instantaneously. Not now.
Or how about the breakdown in individual sectors. If the economy is as good as the bulls say, you would see interest rates soaring and bank lending skyrocketing, taking the bank stocks with them.
But the bank stocks have been the worst stocks in the market, even after a crucial, shocking merger between Sun Trust (STI) and BB&T (BBT) . In all the years I have been in business I have never seen the bank stocks cheaper than this. That makes no sense at all, especially given that bad loans as a percentage of capital are the lowest I can ever recall.
For five years FANG has led tech. Now you can't seem to give these stocks away. But the cloud kings, the Saleforces (CRM) , the Coupas (COUP) , the ServiceNows (NOW) , they can't be kept down.
It gets worse. You can have situations like Electronic Arts (EA) . One day it gives you the worst quarter imaginable. The next day it puts out a new game, Apex Legends that in a few days has 25 million players. The greatest short become the best long in 24 hours.
So how does all of this resolve itself? How does all of this play out? I think that we have to get used to it. I think that we have to revert to fundamental tenets that can get us through this.
Tenet one? I have been taught by the greatest pros on earth, including the legendary, late Marty Zweig, that as long as you are not fighting the Fed you should be buying stocks. Ever since the Fed switched directions and decided to be more worried about a recession than an expansion, we have not been at war with the Central Bank. That's a green light.
Tenet two: We have a president who, fundamentally, wants the stock market to go higher. I have total faith in his willingness to change his mind to help the stock market. He is the most stock-market friendly president in history. When the Fed chief was dead wrong in calling for multiple rate hikes, Trump called him out on it. Trump was right. I don't just want an independent Fed chief. I want an independent Fed chief who will do the homework and not dig in his heels regardless of the data. Hate him or like him, Trump cares passionately about stocks and that's a huge check in the bulls' favor.
Tenet number three: There is no inflation to speak of. When there is no inflation you want to own stocks, not sell them.
Tenet number four: Corporate balance sheets are as strong as I have ever seen them. When balance sheets are strong the stocks of those companies have a greater likelihood of bouncing back than in other times when the balance sheets are weak.
Finally, tenet number five: Stocks are not expensive historically. Sure, if the Morgan Stanley analyst is right they could prove to be expensive but not if we get a trade deal, rates stay low, the Fed stays on the sidelines and earnings keep surprising to the upside as the vast majority have this earnings season.
In the end the facts, to me, support staying in this market, favoring the hopeful side. But you need to recognize the gulf and even be comfortable with it to agree with me and stay the course.
(Salesforce.com is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells CRM? Learn more now.)
