Who wins? The giant hedge funds that treat stocks like a plaything, or individual stock investors who pick the stocks of good companies to invest in and own-not rent-but own them.
The giant hedge funds, the ones that take the temperature of the market every day and make decisions based on one factor, the price of oil, which is almost entirely hostage right now to the trade talks with China. Oil declined today because there was no news about the trade talks an no news is bad news. SO the S&P got hammered too.
The individual stock investors? They don't have the capital to play much of a role if oil's down and the hedge funds want to bang down stocks right along with it. They can't offset the oil-related futures selling.
Today was one of the more ridiculous days in the daily stranglehold these financial hooligans have over the stock market. We saw a huge surge for all stocks at the opening bell, mostly because four big cap companies, including three Dow stocks, reported some incredible numbers and therefore buyers flocked in to buy them and the pin action that reverberated through the marketplace. By 9:51 a.m. the Dow Jones Average was up about 250 points and the S&P 500 was up slightly less than that on a percentage basis.
But then oil, which had been meandering idly at the opening, took a sudden vicious turn for the worse, dropping down more than a dollar and the S&P plunged with it even as the Dow, brimming with earnings winners, held steadfast for much of the morning.
At the nadir of the oil battle, though, the hooligans had sent the S&P into the red as much as it was in the black earlier in the day. That drag was so powerful that it took the Dow down 100 points, or 250 from its high, despite the spectacular reports from three of its members.
The intra-day decline of the averages was breathtaking and totally linked to crude as nothing else came out, nothing else happened!
But then oil turned, as if by magic, and the next thing you know the averages flew up 200 points only to give up some of those gains when, you guessed it, oil gave back some of its gains and fell 80 cents. Ultimately though, the Dow managed to regain much of its early morning romp, although the S&P could barely get back to even.
Now this stuff makes me furious. First, 90% of the S&P actually should be going up with oil going down. Where's that linkage?
Second, it denigrates everything investing is really about and explains why it is so hard to beat the indices. You see the futures overwhelm the common stocks and all that hard work is for naught, or at least, has to be filed away until oil reaches a level where it can't be in free-fall - a level of course that remains a mystery to all, including the most informed.
You know what really galls me? The hedge fund hooligans don't really know anything about the companies they trade because they are all part of some basket that makes a mockery of the art of finding companies that produce terrific results. Stocks are ears of corn and they all pretty much look alike to these louts.
So, if stocks really are just part of a bushel waiting to be made into corn syrup, what's the point of trying to identify good stocks?
I'll tell you the point:
Longer term the hooligans are not right. Longer term, like we saw in the trough of 2016 when oil hit the twenties - it is flirting with the forties right now after a 25% run to the fifties this year - it is bountiful for the stock market when oil is low. It helps everything from freight costs, to plastic discretionary consumption. Stocks are, ultimately, winners from lower oil prices and the performances of individual companies do matter to their stocks.
Shorter term, though, the hooligans will always win because you simply can't marshal the buying power to take the other side of the trade, not with the speed with which the Chicago-based futures blitz into the New York-based stock markets.
That doesn't mean we should ever throw our hands up and give up finding good situations even if they seem like sand castles battling the tides of the know nothing ocean of selling. We can ultimately beat back the onslaught with individual stocks that report amazing numbers and raise forecasts.
So, in the interests of celebrating management skill, perseverance and natural attempts to make you money regardless of the selling tsunami, I am going to go over what can cause some stocks to outperform over others and, given some time, will prevail over the insane oil linkage that damages the stock market's entire credibility as a place to invest.
We got four standout reports today, four reports that astounded me with their strength. Now we know that the traders who are in charge of the market minute to minute don't give a hoot or a fig - I really don't know what that means but my wife, Lisa, says it to me all the time about my views on many things, particularly the ones where I don't know what the heck I am talking about - anyway don't give a darned about individual performances. They tend not to even know the companies let alone the symbols. But you know what? I know you want education and you want context so here goes.
Four stocks defined today's opening before crude took over: IBM (IBM) , Procter & Gamble (PG) , United Technologies (UTX) and Comcast (CMCSA) , the first three happen to be Dow stocks, and the last one is parent company of this network and signs my paycheck.
IBM reported last night and I like everything I heard. First, the company is really making strides in its hybrid cloud strategy, the one that allows you to have an on premise cloud or one off premises. Given how many companies still need to migrate to the cloud this is a huge market. Meanwhile its older businesses which were bleeding staunched much of the blood. I think the company is set up well for the consumption of its merger with Red Hat (RHT) which will give it a real leg up when it advises companies to migrate to the cloud.
Then Procter & Gamble shocked the market with a gigantic earnings beat and guide-up. So many divisions have turned positive here: skin and personal care grew in the teens, fabric and feminine care, high single digits, family care, oral care and personal health care, mid single digits. These are incredible figures. Each of its top 15 markets grew organic sales with China up 15% -- a big chunk of that from singles day -- India up 16% and Japan up 9%. Best of all, e-commerce organic sales grew nearly 30%.
United Technologies quarter? Insanely positive, with results and guidance substantially better than expectations, led by aerospace where Pratt & Whitney gave you 22% organic growth. The company spent $10 billion developing a disruptive engine, the first real innovation in ages and it sold more than 1000 of them, which is stupendous.
Finally, Comcast grew subs and cash flow much better than expected and, again, fast disruptive technology, particularly the X1 platform, brought in a huge flock of new subs, much more than almost anyone expected. Best of all, the Sky acquisition already looks like it is adding a big amount of growth because so much of Europe is under-penetrated and there is no competition of any kind to speak of in many of its domains. The U.S. is pretty tapped out, all the more amazing that Comcast could have so many additions here. But Europe reminds me of the U.S. when our country was dominated by rabbit ears.
Ultimately, the rally in oil off the bottom gave the S&P traders something to move the market back into the black. The Dow, helped by the three big winners, did just fine. But I have no doubt that if oil had kept plunging even these four standouts would not be able to withstand the downing nature of the Chicago wave of selling when it sweeps over Wall Street.