When everything starts heading higher, people really grow far more nervous than when it's just a sector at a time.
Last week we started seeing everything going higher.
Think of the groups that began to expand their multiples: banks, retailers, semiconductors, consumer packaged goods, hardware, health cares, cloud names, restaurants, cyber security stocks -- even industrials.
It was like a jailbreak.
It was like something we haven't seen in ages and I think is freaking people out. We've been used to bull-bear rotations for so long that we only know if one group's winning there has to be a loser.
Take Kohl's (KSS) and CVS (CVS) , two Action Alerts Plus charitable trust names with stocks that are doing quite poorly. Today, we learned that all 1100 Kohl's stores will accept Amazon returns. The stock of Kohl's started bottoming just last week after a tortured period of decline based on some surprisingly weak same-store sales at a time when Walmart (WMT) , Target (TGT) and Costco (COST) reported strong comps.
The Kohl's-Amazon tie-up is not new news. It has been in pilot for a long time and is an instrumental reason why we decided to rebuild the position after cutting it down -- a decision that was early/wrong depending upon your level of anger. You know where I come down. I don't like the process of returning but I am nowhere near a Kohl's. If you are close to the 1100 stores, it seems likely that you won't be able to run in and out without picking up something you need NOW.
I bring this up because if Kohl's stock goes higher, you can bet that this group will be considered bottomed. I think the same with the stock of CVS, one of our worst picks that is now gaining steam.
Let's analyze these two. Nothing had really changed -- we knew about the Kohl's-Amazon tie-up, which only USA Today seems to think is newsworthy -- and there is NOTHING new at CVS other than the prospect that some errant and wayward judge might rule on the break-up of CVS-Aetna, a deal in itself that has run into a Democratic primary buzzsaw in the back and Amazon in the front.
Again, if this stock rallies, it will be considered multiple expansion.
These kinds of moves, where we pay more for the same earnings, are typical of advances during the end of a big rally, not the beginning.
Now let's consider the banks. Ever since CCAR, the bank regulatory revision, Citigroup (C) has finally broken out. It's been a labored move and it is at the vanguard of the group, given its large buyback that has been voracious in its consistency. Again. Multiple expansion. JP Morgan (JPM) , U.S. Bancorp (USB) and Goldman Sachs (GS) seem to be following.
I pick on these two groups because they have been among the most egregious of the laggards.
Now, we know that the Consumer Packaged Goods -- think Proctor -- the semis -- Texas Instruments (TXN) -- the health cares -- think Merck (MRK) -- the cybers -- cogitate on Cyberark (CYBR) -- the clouds -- think Okta (OKTA) -- are all extended and need to cool off. They are frothy, although when I pointed that out three weeks ago and they kept going higher my credibility, not theirs, was put on the line.
But Citi? Kohl's? CVS? Aren't they losers?
Yes, until you consider their multiples: Kohl's is 9x, CVS is 8x, Citi is 9x. In comparison to, say, Okta or Crowdstrike (CRWD) , initiated on Monday to great fanfare despite giant losses, KSS, CVS and C are too cheap.
So should we be fretting that the laggards are finally moving? Yes, I would argue, if there is not enough money coming in to the market, something that the Financial Times confirmed in a piece Sunday, pointing out that equity outflows are the strongest in three years.
But no, if the money is now going to cheaper stocks -- IF the more-aggressive growers stall here based on the fact that too many have come public in me-too fashion, meaning cloud based software as a service stocks with a go-to market land-and-expand ethos.
So, what has to happen to get us out of this box? I would say that companies with higher dividends that have not moved much -- Kohl's, Citi and CVS fit that profile -- can have a move higher given that, even with better employment, there is the possibility that the Fed rolls back at some point in the future.
But once more into the breach. I don't like the froth I see in these new offerings or in the cloud kings and princes and I don't see how the restaurants and consumer packaged goods stocks can go still higher based on nothing while the data stocks, including semis, seem to have orders, not stocks, stalled.
All of this makes me neutral on the market, represented by our higher cash position for the trust. And I think only a cool off of the hottest stocks can justify a further advance.