Can everything be right? Can there be a moment when you can't even see what can go wrong?
We are in one of those moments when I believe that the buyers are too complacent and that you can't possibly have it all the ways you would like.
Hope can spring eternal, but Thursday, I think we saw too much hope spring eternal, and I think it can't be reconciled. You can't have the banks go up and the financial tech stocks go up. It is either one or other. You can't have both old and new tech rally. They tend to trade in opposite directions. And you most definitely do not have the soft goods companies go up, when many of the more industrial techs rally.
What's going on here? Where did the rotations go? Why is it that only the industrials are able to buck the upward trend --and that's because several of them gave some downbeat analyst presentations?
I think it's pretty simple: Someone's wrong. Everyone's presuming that things are good everywhere, and it's not going to pan out that way.
Let me explain.
For a very long time now this market has been hemorrhaging money. We have seen individuals leave the asset class for bonds seemingly at any level. I think stocks have become, in many ways, a discredited asset class despite their favorable tax status.
The marginal buyers tend to be pension funds, individuals buying index funds for retirement and the companies themselves. Who can blame them? Stocks are trading erratically. They are being revaluated on any bit of news. There is no consistency whatsoever, and we have now advanced for seven straight days, a rather long skein, and one that usually means buyers will soon be exhausted, more on that later.
The lack of money in has often meant that we have whippy rotations, where money leaves one sector for another or flits around from, say, the big banks to companies like Mastercard (MA) , Visa (V) , and American Express (AXP) , depending upon whether interest rates are going up or down.
Not now. They are all rallying.
What's the cause? While I would love to believe that there is a new wave of money at last coming into the market, the statistics say otherwise. In fact, we are experiencing one of the largest migrations from stocks to bonds we have seen in ages.
No, I think that some of these buy factions will prove to be just plain wrong, and it could cause pain when the smoke from the battle clears and we see the winning side.
First, let's talk trade. Right now, buyers are under the impression that we may be having a thaw in our trade war with China, because President Donald Trump extended a goodwill gesture by pushing back the next bump -- 5% -- two weeks so as not to coincide with the founding of the People's Republic.
In return, the Chinese Wednesday night said that they would be willing to make an interim deal on trade, if we would be willing to separate purchases of goods with the other issues we think the Chinese should change, the ones related to intellectual property, bogus joint ventures and coercion against those that do business in China.
All that sounds rather rosy. Except that's a total misread of the situation. When the president first began to upend our decades-long trade practices of letting the Chinese pretty much have their way with us in return for hopes that they would become more democratic and more open, he was focused on our trading imbalance. Had the Chinese stepped up and bought a lot more goods from us, the tiff might not have escalated into a trade war.
But they didn't. And now the president is digging in his heels, insisting that the Chinese address all sorts of inequities, especially because the idea that the People's Republic has gotten more open and more democratic is just plain fanciful.
That's why the Chinese response to the president's two-week reprieve is so tone deaf. We're way too late in the game for him to be appeased by a soybean buy. The president's confident of winning the farm states anyway.
So those who think we are closer to a trade deal and are buying lots of companies that do well when we have great relations with China -- including semis, Apple (AAPL) and Starbucks (SBUX) -- are being too rosy. I foresee disappointment.
How about the banks and the fintechs? Those who are buying the likes of Bank of America (BAC) and JP Morgan (JPM) are betting that the economy is going to get better, taking rates up with it. Those buying Visa, Mastercard and Paypal (PYPL) are wagering that the economy will slow, rates will come down and you will want to own companies that do just as well when things are fast as slow, because of the secular trends of paper to plastic and plastic to digital.
I think that buyers of the banks could be off-base, because I don't see a much stronger economy occurring. Here's why. To get that to happen, we need the Fed to cut rates and cut them soon. That will re-accelerate the economy for certain. I fear, though, that Jay Powell, will want to be measured and say that he needs to see a further slowing before he cuts when they meet next week. Of course, he might really not want to cut rates, because he doesn't like being called a bonehead, the president's precise term for raising rates too far too fast and then taking them down at a much slower pace, disadvantaging us vs. the rest of the world, especially the European Union, which has a bias toward less than a less-than-zero monetary policy.
I think the president's dead right about cutting rates to keep the economy hunting, and I see nothing wrong with trying to take unemployment even lower by bringing in the formerly thought of as unemployables. But the Fed can't cut and not cut at the same time. Count me as a buyer of the Mastercards and the Visas.
Then there's the retailers vs. the consumer-products companies. We buy the former when the economy is humming. We buy the latter when the economy is sluggish. I think the retail stocks have had too much of a good thing and can be trimmed. And I think that the consumer-packaged goods stocks are too expensive vs. their historical levels.
Finally, there's old tech vs. new tech. Old tech is typically about supporting personal computers and cellphones. New tech is about the cloud. I believe the former is rallying because of a trade deal that I don't believe is happening this soon. The latter's taking off, because the sellers are exhausted and yet the numbers for the cloud companies, like those recently reported by Salesforce.com (CRM) are stellar. I trust the cloud, and I am suspicious of cellphone sales. Remember, I think this remarkable rally in Apple is all about the watch and the service stream growing to the point where the company can smooth out revenues and ultimately raise margins and earnings per share.
In the end, it is possible that both sides could be right, one after another. But both at the same time? It's been known to occur periodically, but not last for long.