As the nation slips deeper into its own inability to deal with big issues out of fear of near-term pressure or a modicum of pain, the stock market seems to be dealing with its own outbreak of panophobia, also known as omniphobia.
Since the start of the year, the market has been pressured from a variety of issues:
- Weak dollar
- Rising yields
- Strong jobs numbers
- Weak job numbers
- Strong consumer
- Weak consumer
- Signs of inflation
- Signs of recession
- Non-financial headlines
Heck, there are times we are supposed to cower about diametrically opposite positions.
How else can you explain how economists and market experts expect and see the need for aggressive Federal Reserve actions to slow down an economic locomotive and a bond yield action (at the same time) that clearly points to a recession right around the corner?
Nothing to Fear
The fear of everything continues to trip and haunt the market. Case in point: anxiety is associated with a 3.0% yield on the ten-year Treasury bond. The equity market, which is in the midst of an earnings season that so far has seen a blended growth of 18.3% is the best pace since the first quarter of 2011.
The last time the ten-year yield tickled a 3.0% yield was December 23, 2013, when the Dow Jones Industrial Average closed at 16,225 by December 31st. The index was up almost three hundred points. Interestingly, as yields turned lower, so did stocks, and major indices moved sideways for the next five months.
When the market turned higher, it was off to the races as yields faded into a distant afterthought.
Real Issue: Leadership
Consumer Discretionary
There is a real issue with the lack of market leadership as technology continues to struggle. I think two areas to watch for are consumer discretionary names; unlike consumer staples, they have pricing power and an increased demand.
Yesterday, it was the beaten-up names in the sector that rallied in part to the strong upside reversal in Hasbro (HAS). All the best performing names in the sector were tossed in the dustbin over the past year, including Mattel (MAT), Hanesbrands (HBI), Under Armour (UAA), and Michael Kors (KORS).
Now, value investors are on the hunt, and I think they will make a lot of money on some of these names as stealth rallies in names like Macy’s (M) and Kohl’s (KSS) bottom fishers are enjoying gigantic gains.
Industrials
I also continue to like industrial names, especially Caterpillar (CAT), which fetched a couple upgrades yesterday morning. After the close, Caterpillar reported its monthly retail sales results for March; year-over-year gains remain strong, powered by its oil and gas industry.
As I previously mentioned, the market has gotten stuck in these sideways trading patterns in the past. Usually, they last a few months, and often quietly breakout on compounded good news rather than a singular event.
Since every event these days is frightening, investors will need to come to grips with the good news being good news. I think it’s going to happen, and I bet most people will miss this whole thing.
Today’s Session
Futures are indicating a positive open for the major indices as the earnings parade continues. Six Dow components reported this morning including Caterpillar (CAT), Coca-Cola (KO), 3M (MMM), Travelers (TRV), United Technologies (UTX) and Verizon (VZ). In addition, quite a few consumer discretionary names reported such as Harley Davidson (HOG) Polaris Industries (PII) and Pulte Group (PHM), which has strong momentum, hiked delivery, increased average selling prices (+10%) and operating margins. Overall, the earnings have been better than expected and bode well for the broad market.
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