Last week there was furious buying in some pretty oppositional groups. The buying was pretty darned hard to fathom. Take the rally in the Procters (PG) , and Cloroxes (CLX) and McCormicks (MKC) . Why did it occur? Are people buying the consumer packaged goods stocks because inflation has peaked? Or because a recession is in the offing? What drove that furious buynig?
Same with the pell-mell rush into the utilities both the strong ones like (AEP) and the weaker ones like FirstEnergy (FE) and Southern (SO) , therefore, no doubt, ETF related. Was this love affair kindled because rates have peaked? Or because Fed chair Jay Powell is going to throw us into a recession with one more rate hike this year and three the next?
Or how about the harrowing action in tech stocks and FANG? Are people selling the techs because the data center and the cloud have peaked? Or is it because China is slowing and China holds the key to tech growth? Or is there cellphone saturation and that's the key to many semis and that's rolling over for certain?
There are so many different permutations and bets being made at once that it's awfully hard to tell what anyone is thinking or what patterns might exist that can be gamed and played.
We can try to unpack the moves and see what we can make of them and the cross currents that they are generating.
First, we have seen oil lead most commodities down of late and while OPEC might try to prop up crude with its meager production cuts, supply is really coming to the market with the U.S. really ramping exports, as you can tell from the sudden increase in Suzemax rates - the largest oil tankers - emanating from our supply.
That could be a really good reason why Procter, for example, has been running, because it is a huge user of energy. I could say the same thing about Clorox. But it doesn't explain, say, why a Hormel (HRL) or a McCormick keep rallying. Those are bets on slowdowns/recessions. Plus the ETF action doesn't really cover either so it is entirely possible it is real buying.
Either way, the group does well at this point because more rate hikes, typically viewed as competition to the yields on these stocks, is now being viewed as something that will cause shortfalls for all but this group and this group will be boosted by the bottom line margin expansion that comes from lower energy.
How about the cyclicals? I think that without a deal with China these stocks will start doing badly BECAUSE of China. That's right, we forget that so many of them need China to re-accelerate for them to accelerate, wholly apart from the tariff issue. I think the group is getting more and more suspect because of China AND because of rate increases.
Tech? Very, very tough. The semis still act badly. The tech that's connected with China acts badly. And FANG acts badly. Both tech and cyclicals seem very dicey at the moment given a China slowdown and more rate hikes. FANG is, alas, government interference, a perceived slowdown on the web - one I doubt but it's out there - and competition from all over the place, including Microsoft (MSFT) , for Amazon (AMZN) , and Disney (DIS) for Netflix (NFLX) .
It's tough to be led by the utes and the CPGs. Both signal bad things for the rest of the market, including financials ex fin-tech for that matter because a recession is really terrible for lending and banks aren't boosted by a decline in oil or other commodities. The insurance companies have been doing well because inflation is coming down, but they don't control the group.
There is one other leadership group that can make a difference: health care.
There the buying is pretty voracious and that can only mean slowdown not necessarily a peak in inflation. That group can be bought and bought aggressively into any pullback.
So what has to happen to advance? That's the problem. You need to see a deal with China at the G-20 at the end of the month. It would make sense if the war with China were just about trade. But it's bigger than that. Remember the Pence doctrine. Or you need to see some sign that Powell wants to wait and see what's going to happen with the economy given that there is such weakness in housing and autos. But we've been weak for some time and it has meant nothing to him and his acolytes on the Fed as we shall see with multiple speakers this week.
A bull has to hope that he sees what is happening with the commodities and recognizes that it's ill-advised to tighten.
But that's an awful lot to hope for.
My conclusion: too few leaders, too many clinkers, which is why it was disappointing, at least to the sellers, for the collapse in the futures overnight.
(Microsoft, Amazon and Disney are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells MSFT, AMZN or DIS? Learn more now.)
