One of the more pleasing things about this market is its ability to take things literally and not interpret them to a level that's absurd.
Most of the time in the last two decades companies haven't been rewarded for the success or failures of management. They were punished if they were in a woeful sector and rewarded if they were in a hot one.
Or, if the market were to take a header because of some exogenous event they would be creamed because they were part of the S&P 500. Individual corporate achievement didn't matter because stocks were commodities. Is one strand of wheat or one ear of corn different from another? Once stocks got commoditized you saw the exact same process. You had to wait until the futures smoke cleared before you could buy anything, the futures, by far, being the most important component of performance.
For most people that's pretty much the gospel, accepted by market fiat.
But for those of us who have been around forever or the marker historians among us, we recall the period before the time of commoditization where individual elan and corporate dominance meant something.
When I worked for Goldman Sachs (GS) in the 80s I used to teach that 50% of a stock's value was derived by what management did, and the rest was divided pretty much equally between the sector and the averages.
Then the futures asserted themselves and then ascended to where we have seen them for two decades, changing the ratio of a stock's movement from half management, quarter sector quarter market to probably about two fifth's market, two fifth's sector and only one fifth actual corporate achievement.
Now you hear people talking that it suddenly has become a stock picker's market. That's not true. What we have is a market where we have reverted to where the market or the sectors are no longer in charge. The ratio is back to the way it was, 50-50, where the homework on individual stocks, not the Fed, not interest rates and not exogenous events even as serious as the aborted putsch to keep Donald Trump president.
How about some examples.
In the last couple of weeks Eli Lilly (LLY) has had some good news on a possible anti-Alzheimers formulated and on a drug that might prevent Covid from spreading among the most at risk, the people in nursing homes. The stock's been able to break out of the orb of both the market and the drug cohort. Johnson & Johnson (JNJ) is rumored to have a very big announcement about its Covid vaccine, something I believe could be a reality. Again, the stock is no longer trapped by cohort or by the S&P 500.
PayPal (PYPL) hasn't reported in ages but its stock is now worth $300 billion because it's taking share from Mastercard (MA) and Visa (V) . It's a shocking development to see a $100 billion company turn into a $300 billion company pretty much in a couple of year's time.
Or General Motors (GM) . This is the best performing stock of 2021 because it is becoming more and more of an EV company, and less and less of a fossil fuel dinosaur. Before the toppling of the futures dominance this could not happen. It would be stuck in a rut for a very long time. Now, though, the amazing work of Mary Barra is being rewarded by the market, as it would have in the 80s before the tyranny of commoditization began.
How did this happen? Was it an influx of younger buyers who don't pay much attention to macro factors? Was it the fact that rates are going to stay low so we don't have to worry about a sudden interest rate jolt? Is it that buyers realized that they didn't have to take it anymore? Could it be all three? Whatever, it makes the market act more like a market of stocks than a bushel or a peck and that's great news for those who want to make money the hard way: doing the homework to recognize the value that managements are creating and enjoy the bounty they are generating for you.
(Goldman Sachs and Mastercard are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.)
