Can the inability to successfully vaccinate people in time to stop Covid shut down the economy? Can the run in GameStop (GME) and company cause the stock market to rollover? And does it even matter if we are about to get a slew of earnings reports, the most S&P 500 companies, starting tomorrow?
I cannot underestimate what each question may mean to the averages and individual stocks. But let's talk about the big dichotomy between the inoculation campaign and the GameStop phenomena.
This weekend we were treated with story after story about how the attempt to jab 100 million people in 100 days, the President pledge, seems impossible to carry out. There are not enough vaccines to go around. Meanwhile we keep hearing about these strains that may defeat the vaccine which would make the whole shebang a pyrrhic exercise.
We already know the economy is weakening. It is true that we have gotten a slower caseload of late, 132,000 when we were seeing many days well over 200,000. But the psychological impact means we may have a voluntary shut down of some sort just when things are starting to look better.
Here's the thing, though, for many people they are better. For the 93% of people who have jobs it's a time of saving as most of the people who have money are doing nothing with it but investing or watching it grow. Our service economy, yes, the one we have become, is reeling, but the people who count on travel and leisure and dining and sports seem to be the only ones affected. The low interest rates and the need to buy a house and a car to use it because you are going to be outside the city limits is coming on very strong. I talk to the homebuilders, this may be the best market ever because the motivation now isn't just family size, it's work space and school space and safety. I can't underestimate how strong the safety component is because there is no price on safety. That's why homebuilders are selling lots so quickly. The depopulation of the cities makes them a dangerous place for everyone. The suburbs and the country, with car, will travel, at least to a big supermarket with wide lanes and social distancing.
This wholesale exodus has fueled a gigantic number of upside surprises given, well, how surprising it all is. The optional nature, the hybrid work style is, again, a boon to the service industry and retail. Oh, and if you are really worried about going out, there's always Amazon (AMZN) , Netflix (NFLX) , Take-Two (TTWO) , and Domino's (DPZ) .
Sure, you have to be worried that the lack of a vaccination and the undisciplined way people wear masks and the inability to test everyone in a methodical inexpensive way at home, can hurt the economy. But I would say we have learned our lesson: keep the economy open, keep the elderly and the at risk home. If the latter get sick, I think our country got used to a Trump administration where it was basically their own fault.
So if you are selling stock on the belief that the economy is cracking I would say you are making a big mistake because the Fed has to keep interest rates low for the have-nots, while the haves stay at home and order some things but save a lot of money not being able to travel. When the Fed meets Wednesday I have no doubt that Chairman Powell will render that exact same verdict. The two months of housing supply should be snapped up rather quickly if that's the case.
But how about the second worry, that the stock market will be brought down by wild action in a few "targeted" stocks. What's this about? There's a site I have mentioned, WallStreetBets, and there is a community of lots of people who are choosing individual stocks and running with them. They don't target any stocks. They target stocks that are heavily shorted. They come up with a thesis - all on display - and then run them and run them until the hedge funds that are short the stocks have to cover them less they go bankrupt.
I have been in these situations several times. The only thing the short-seller can do when you are targeted - and I was targeted several times because it leaked out what I was shorting - is to throw in the towel and cover your short. You can see the battle in GameStop, where the shorts believe the company is worthless and the longs think it is going to the moon and, as I said with my short-selling efforts, the gunners have it.
The WallStreetBets crowd easily access the short positions. GameStop was ludicrously shorted. More than 148% of the stock was sold short, which is insane. The shorts just didn't understand the power of what can happen when the longs gang up
We saw the same thing happen today in the stocks of B&G Foods (BGS) and Bed Bath & Beyond (BBBY) which have short positions of 36% and 67% of the float, respectively. My advice to the shorts? You don't know who WallStreetBets will target next.
Now not all of their buys - whoever they are - bust the shorts. There is a love for Blackberry (BB) and Palantir (PLTR) that's pretty requited. But here is where I come out. Sideshow. I do not think that WallStreetBets can bring the house down. They are picking undervalued stocks and running with them, running especially hard if there's a big short. And they have every right to do so..
Now, though, lets get to the heart of the situation. I have been saying over and over again that this is a market of stocks not a stock market. That it is a throwback to the days before the futures ruled the roost and, from now on, what individual companies do does matter.
I think that the publicly traded companies are much less sensitive to the economy than you think. Many of them thrive in a shutdown, yes thrive because they are displacing how we do things. Tech, in particular does well. I think most of tech has gotten overheated. The endless price target raises for the semiconductors and for Apple (AAPL) are quite unnerving. The latter can hurt the market. There's a whole gauntlet of companies from Microsoft (MSFT) to Tesla (TSLA) to Boeing (BA) and Advanced Micro (AMD) that could hurt the averages.
But of these only Apple as its high. When a company reports a pretty decent quarter, as Kimberly-Clark (KMB) did, the stock soared. So did Clorox (CLX) in sympathy. Will stocks go down as much on a disappointment? The stock of IBM (IBM) , which plummeted from $131 to $118, says yes.
Here's where I come out, though. With the exception of a couple of gigantic techs, let's call them FAANGM, there isn't a stock that could bring down this market. And, if anything, starting tomorrow's gauntlet with Johnson & Johnson (JNJ) , not at all sensitive to the U.S. or world's economies, could be a terrific sign that many big cap stocks are immune to a slowdown and can shrug off the very contained GameStop-like activity.