As we watch the increasingly tragic events in Kabul unfold, many people are asking me why doesn't the market react to the news.
Why do we persist on talking about an obscure meeting of federal reserve officials or the direction of interest rates? I know that this might sound heartless, but investors cannot seem to process the deaths of U.S. service people or those trying to escape Kabul, who may be slaughtered and put those inputs to work in a defensive way.
The market is not a referendum on bloodshed. When terrorists truck bombed a Marine barracks in 1983, killing 241 soldiers, a shockingly sad event, the market barely reacted to it, because, again, neither bullish nor bearish investors could figure out how it related to their portfolios. There was no heartlessness. Just sadness and no route to your money.
That's how this news is being taken. There is no relationship, even as many people have asked me why isn't there one or, perhaps more importantly, why don't I find one to make it clear how wrong all of this is.
To these people, all I can say is I am sorry. My job is to try to interpret news and events that can impact your portfolio or should, if it is relevant, and, sadly, many tragic events just aren't relevant to your money.
The way I see it, today was a day when we had to hear about how rates are going to go higher, because the economy is simply doing too well to ignore. The news flow, like that from Toll Brothers (TOL) in housing or Williams-Sonoma (WSM) and Best Buy (BBY) in discretionary spending or Snowflake (SNOW) and Salesforce (CRM) in information technology is too overwhelming to ignore.
Contrary to the terrible event in Kabul, the buoyant nature of the U.S. economy coupled with the trillions of dollars the Democrats want to throw at it, makes it imperative that some time soon the Federal Reserve can take action to curb excesses that are natural when things are this good.
Some of the reason that things are going well have to do with the Federal Reserve. It's entirely possible, for instance, that rates being as low as they are, Toll Brothers, which was on "Mad Money" last night, will sell more homes at higher price points. You raise rates and there will be some dropoff in sales. But as CEO Doug Yearly told us, this is not a housing market about rates it is a market about supply and demand. Houses don't need to be sold; they are selling themselves at ever increasing prices, because demand is overwhelming supply. As Yearly said, that's because millennials are now buying homes in record numbers, the hybrid workforce because of COVID requires more houses and the country has underbuilt for more than a decade.
You can see the underbuild from the statistics. One statistic says it all. When we were a nation of 207 million people, we built 2 million homes. We now have 331 million people, and we built 1.3 million homes last year. We built that same number in 2019, without COVID.
That's simply not enough.
That's why Doug can state, confidently, that the most cyclical business on earth, the one that is hostage to rates and the economy like no other, is now in secular growth mode and you better start believing it, or you will miss out on so many opportunities, not just in the homebuilding cohort.
Let me give you some examples. For years and years, one of the more difficult stocks to own was Whirlpool (WHR) . There always seemed to be something that went wrong: Dumping by our so-called allies, or weakness in Brazil or skyrocketing metal costs. Management was often suboptimal, too.
Not anymore. Marc Bitzer and his team at Whirlpool have introduced all sorts of innovations and manufacturing efficiencies, and, while costs are going up, this stock is the kind that now works even as rates tick higher. That's, again, because of the secular growth of the home story, because of years of underbuilding and the familial need for a roof over their heads.
Same with Williams-Sonoma and Best Buy. The latter put up unbelievably good numbers, and, more importantly, is adding a sticky membership program that gives you information technology help at your home among so many other goodies. I would normally not recommend the stock of Best Buy if I thought rates were going higher. But this is a different time and the secular growth that Yearly talked about and the acceptance and approval of the home office is making Best Buy an integral part of the new place to work. Corie Barry is crafting a Best Buy like I have never seen before; she wants to put BBY in an unbeatable place, turning the tables on Amazon (AMZN) .
Now along comes what may be the best single companion to the homebuilders, and that's Williams-Sonoma, run by the brilliant Laura Alber. If you want to know how news impacts your portfolio, consider the news of Alber being able to generate for more in earnings from this company than any of us have ever seen. It's remarkable how strong business is, much stronger than the analysts -- some of whom were recommending the stock be sold short ahead of the quarter. Alber has almost every room for a new or used home covered, from bedroom to living room to kitchen to home office. That's gone cyclical to secular on the same plane as Toll.
So please don't curse the market for its heartlessness. It never had a heart to begin with. The focus is always on what's in bull market mode. And right now it's right where you live.