America wants to do what Americans do best: shop, carouse, gamble and generally have a good ole time, and when they can do it, the country's the juggernaut it used to be.
That's the only way to interpret the incredible pin action this market gave to a single report, the ADP National Employment read which showed that "private sector employment decreased by 2.76 million jobs in May when economists were expecting a decline of 8.75 million.
I know, there was a time when a loss of 2.76 million jobs would have been horrifying. We would be singing "I dreamed I saw Joe Hill last night, alive as you and me" and putting mattresses on the roof of our car, Tom Joad style", to search for a job in California.
Not now. We're cheering what actually may be an aberration, a number that's too bullish. No matter, we will take it. And we will take what it brings which is a wholesale shift in what we are buying and what we are selling to fund it.
First, know your rotation. This one's about a return to shopping but also a return to big-time commerce. That's where you can get everything as diverse as the stocks of Nordstrom (JWN) , Kohl's (KSS) , and Footlocker (FL) , as well as Norfolk Southern (NSC) and Union Pacific (UNP) , roaring ahead. The latter two seem to have zero resistance and no stock for sale anywhere near here. Same for Cummins (CMI) , Caterpillar (CAT) , Honeywell (HON) , and even Boeing (BA) , which acts as if the 737 Max is on the verge of being approved by the FAA.
Some of those retailers, along with the cruise lines, were supposed to be out of business by now. But no one goes out of business in this happy era except the small businesses that are hanging on by a thread as they try to avoid their windows being smashed by the looters disguised as legitimate protesters to the horror of the murder of George Floyd, and the protests in the wake of such injustice.
So what do you do? You first have to know where the money is coming from. Number one, sell the bonds off. Who needs bonds when you have a genuine recovery, maybe even a V recovery, which could be back on the table with that robust hiring. Second, you clock the drug stocks, particularly those that have been boosted by attempts to solve the novel coronavirus, but also those working hard to crush cancers. They are crushing the stock of Regeneron (REGN) which I think has the best monoclonal antibody against the disease. But they are pouring out of Johnson & Johnson (JNJ) and exiting Pfizer (PFE) , too.
Third, you sell gold because gold is a safe haven you don't need if we are coming out of a depression. We just did a negative piece on gold, how it is a crowded trade, thank you Carley Garner, and it looks like that negativity is coming to fruition pretty darn quick.
Then, fourth, you have to suspend the stay at home theme even as you can keep the work at home theme. You sell the video game stocks because you might be playing video games at Dave & Buster's (PLAY) , an outfit that was at death's door just a few weeks ago. You stop cooking so even if you get a terrific number from Campbell's Soup (CPB) , which you did, you give it the old boot.
And of course, you unload FAANG, taking care not to sell Apple (AAPL) too hard because Katy Huberty, the axe in the name, is saying that the service revenue will be very out of control when the company reports. Hmm, great gross margins on that business, smells like an upside surprise, but do not expect a preannouncement, so be careful.
And what stands out as something to buy? You need what we call easy comparisons. Start with something like Stanley Black & Decker (SWK) , the tool company that this very morning put out a statement saying that the company "now expects organic revenue to decline 15% to 20%." Again, horrendous. Except the 15% to 20% is "compared with expectations provided in mid-May of a 20 to 30% decline." Looks like there is better "visibility of strong performance: in tools and storage sales, as well as global security sales."
If people are shopping again we can pick off individual retailers. Or isn't it easier to buy shares in the world's largest shopping mall company, Simon Property (SPG) with that terrific 11% yield, a real feat since the stock started the day nine points below where it is. Simon Property has paid out $33 billion in dividends and CEO David Simon doesn't want that payout to be cut. That's for certain.
Oh, and who does better if people are out and about? The banks, for one. They can play catch-up, especially ones with big brokerage businesses because of the success of the Warner Music (WMG) deal, which rallied huge, showing you that the brokers want you to make money as they always do at the beginning of an IPO cycle.
Now there may be some things troubling you if you think about what we do best: go out, shop, mingle. It means we are gathering again and gathering is supposed to be off limits in the era of Covid. But something has changed in the psyche of many: they just don't fear Covid-19 as much as they once did. They might very well come down with the disease but they may also know many who have come down with it and found it to be flu like and not much more. I will say, personally, I think that this view is ill-advised. We still don't know much about the darned thing except it is easy to catch and does kill people beyond those in nursing homes. But try telling that to those who have invaded the malls, piled into bars and sat next to each other on beaches.
Second, it seems absurd that there could be so much robust activity, so much shopping and even so much house hunting at a time of tremendous pandemic fright and racial tension. The anomalies should not baffle. While 20% of the work force may be on unemployment insurance, while the protests rage in dozens of cities, there remains a core group of employed people who have sold stocks -- $4 trillion worth -- and want very much to return to normalcy.
What's normalcy in this country? Is it debating how to fix the underserved communities in this country? Sure. It is committing to trying not to get sick with Covid-19. Maybe. But is it shop until you drop?