What would the stock market look like if we had a vaccine, if life would return to normal and we would resume pursuits currently viewed as dangerous and reckless?
The answer is you could get a market like today with a ton of stocks flying and a giant cohort of once red-hot companies, like those in the Cramer Covid-19 index rocked beyond recognition.
So who is right in this dichotomy...or is it a false one?
Let's unpack the issue. First, this rally is based not just on a vaccine but from a firm belief by many that the whole disease issue isn't nearly as dire as it was thought and the President is right, everything should be opened up.
The vaccine seems real to me. At the beginning of this pandemic we heard from many an expert that we have never developed a vaccine faster than in four years' time, the mumps vaccine, which I wish I had had because I remember it as really painful.
Every day now, we are bombarded with news of a new attempt at ending this nightmare. Today we heard that Merck's (MRK) working on a magic bullet using technology pioneered when the company developed a vaccine for Ebola. It also bought a company that understands that measles is a disease far more contagious than Covid-19. Merck, which has a great reputation with vaccines, had seemed to be absent in this worldwide hunt. Not anymore. Its reputation and legacy work lifted the confidence of many. As did the announced start of the human vaccine trial by Novavax (NVAX) . The stock of Novavax, S&P 500 fans, is up more than 1000% this year, a remarkable return. It's at $50 but it was flatlining at around four for ages, just waiting for you, although it has never been able to develop a successful vaccine. Merck and Novavax are all part of a scrum that includes, Moderna (MRNA) , Pfizer (PFE) , Glaxo (GSK) and Sanofi (SNY) , Regeneron, Oxford University and Johnson & Johnson (JNJ) , as well as about 70 others. Why should we be more bullish than the original naysayers? Because, in many cases, they are using technology developed by Nvidia (NVDA) to analyze new drug candidates, imaging the virus and sequencing the vaccine. They didn't have the kind of technology when they developed older vaccines. The speed with which companies can now use this will solve this illness, of that it's almost certain. Time frame? I think that when you have a conservative outfit like JNJ talking first quarter, I have to believe that things are rolling along nicely for not just JNJ but for others. Maybe it can be beaten after all.
As important as a vaccine can be, many Americans simply aren't willing to wait anymore. They were out in force because they now think this whole thing has been overblown because of the poor way New York handled the pandemic. These rebels had been told that their case numbers would spike. But by and large they haven't, so what's the point of sheltering at home. The mantra: Let the pre-existers and the elderly stay indoors or wear the mask, I'm hitting the beach and the bars.
The market's remaking itself, awarding the proclivities of the rebels, who in many states are the clear majority. That translates into a rip snorting rally that was unfathomable back on March 23rd, when the Dow Jones Average crashed to the 18,000 level, and some fancy hedge fund managers traced out apocalyptic views that may have scared hundreds of thousands out of the market at a level that is so much lower you can't believe it traded there... or here at Dow 25,000, only 5000 points from its all-time high and hitting 3000 on the S&P 500, too - the first time since the beginning of March.
So what do people do with this new mindset? Pretty simple: they dump the stocks that had been working, the stay at home stocks, the work at home stocks as well as the drug stocks, as they are all part of the old new world that had us petrified of what now seems like an almost not-existent boogie man, a view that seems to be cheered on by our President.
They take that money - as there isn't enough to go around and the traders are in charge - and they buy stocks like Southwest Air (LUV) , a fabulous airline run by Gary Kelly, or Walt Disney (DIS) , which has been a rocket ever since its poor last quarter and, of course, the poster boys the cruise shops, Carnival (CCL) , Norwegian (NCLH) and Royal (RCL) , all up between 12% and 15%.
Then, of course, there are the companies that thrive with economic activity, like Lowe's (LOW) , Boeing (BA) , Caterpillar (CAT) , Chevron (CVX) or all the banks, the most hideous stocks altogether. Every cyclical had its day in the sun: steels, oils, real estate investment trusts, the freight forwarders like FedEx (FDX) , and homebuilders, which were incredibly strong after new home sales were up for April when they were supposed to be down 10%. Anything that relies on tourism is screaming higher, like Estee Lauder (EL) which does so well at Duty Free stores and, of course, the casinos, which at one time had been considered dead on arrival.
Now what's happening here is pretty extraordinary. These companies were all able to access the capital markets if they needed too, something that Fed Chairman Powell made sure happened. It was a brilliant concept to back all sort of debt and gave business confidence to tough it out. We've had no public failures save for Hertz (HTZ) and that was a balance sheet casualty.
So what's the narrative? Simple: the recession is ending, it turned out to be a V recession and recovery after all. Literally that's the rap, the exact opposite of the hedge fund jeremiads about overvaluation and future crashes. The get out now crowd got left behind ages ago. Will they be forced back in? Without a giant outbreak in some of the wider-opened states, probably not because if it is a V recovery, then you are going to have to own some banks and some cyclicals. It's why I keep stressing to club members of Action Alerts PLUS that you need a barbell made up of stocks that can rally furiously on a vaccine, like the banks and Disney, and you need to have some recession stocks like the drugs and the foods, the latter of which may stay strong if the work at home movement continues, something I think is now a given.
The quandary? Techs. Why own a tech that is way up when you can buy the stock of a beaten up oil or rail or airline? Chevron (CVX) , Union Pacific (UNP) and United (UAL) beckon. I say tech's got so many secular waves its surfing and that you are nuts if you sell them, particularly the semis.
The market's taking a terrifically positive stand and the only missing ingredient is the rehiring of the mob of 30 million unemployed who are getting unemployment insurance and can hold out on it but would rather be back at work, mostly at private small and medium-sized businesses. Will they be rehired? Right now the only mass hiring we are seeing are from retailers like Walmart (WMT) , Target (TGT) , Home Depot (HD) , Lowe's and, of course, Amazon. So many people are out of work that we wonder what will happen when the shock to the system that the Fed provided and the Treasury augmented with its Paycheck Protection Program run out.
Remember, you don't have to choose if you use the barbell. Your Disney and JP Morgan (JPM) and Goldman Sachs (GS) can protect you from your Take-Two (TTWO) or your Eli Lilly (LLY) . But you do have to marvel at the strength we are seeing particularly in housing thanks to low interest rates and a desire to abandon cities, as well as companies like the airlines, that, not that long ago appeared on death's door.
(Johnson & Johnson, Nvidia, Disney, JP Morgan, Goldman Sachs, and Take-Two 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.)