Can it outrun inflation? Is there more demand than supply? Does it make sense at this point in the cycle?Does it play into current events? Can it be linked to travel? Can it be put in a data center? These are some of a very small handful of themes producing wins at this point, in what is developing into one wild earnings season. Let’s dispense with the macro before I get into what’s working and what’s not. We have two events with “big bang” potential and views of the outcomes that will be tinged with politics because we are closing in on the election. Federal Reserve Chairman Jerome Powell met with the press after the March Federal Open Market Committee (FOMC) meeting, which was pretty fraught. That’s because, while I greatly admire Powell and his Fed, I keep thinking that he decided to admit subtly, that he was wrong about inflation eventually going down if he stays the course. I don’t look at aggregate data, I break it down company by company using my “Mad Money” interviews to get a better handle on the cadence of the quarter, and then extrapolate that insight into myriad conference calls to see if I am off-track with anecdotal or on track with an empirical infused vision. My thinking is that when Powell thought he had failed he didn’t realize that his tough talk moved the bond market yield curve and the curve moved the economy. Yes, a 60-basis point move may have been the drag Powell needed to start the next leg down. If enough people agree with me about a reacceleration in business in January and a step up even from there in February followed by a slowdown, perhaps even a severe one in March, then higher interest rates for longer talk may be cause for concern, especially if unemployment rocks in at plus 4% on Friday when the government’s April employment report comes out. A Fed trying to engineer a soft landing — the ridiculous metaphor that has been with us for ages, ridiculous because Powell isn’t even trying to land anything, including a plane — will be caught on the wrong side of the jawbone. That uppercut followed by a possible left jab of strong job growth and or higher wages would cause traders to go all in on the stagflation narrative — and sell or keep them on the sidelines with juicy 5% certificates of deposit, or CDs. We may have to asterisk the employment number anyway because of California’s minimum wage bump up to $20 an hour, something substantial enough, given that California is one-fifth of the country, that my slowdown thesis will be overrun by events out of our hands. Alternatively, a circumspect Fed waiting for more data is a greenlight to buy because it keeps rate cut hopes alive, regardless of Friday’s number — and look out if it is even remotely soft, perhaps because the underground economy of massive immigration might tamp down wages even as it boosts the stickiest of the sticky: shelter. I think the variables favor ” Pangloss ,” a bit of Voltaire which was in bad need of a Google search last week, or perhaps one by the new Meta Platforms ‘ AI, which is pretty darned good by the way. Pangloss, the eternal optimism, is fiction not fact, but we do have a way to get back on a slow rate-cut track. If that’s the case, what will people buy? Let me give you some themes with a sense of the craziness of the disparate winners. Data centers If there is the whiff of a data center or anything in one, the stock goes higher. That’s what happened with Vertiv, where, after a moment’s hesitation, burst higher. That’s what happened less tangentially, to Arm and Club name Broadcom. I expect we could see a Vertiv -like hesitation and bounce by Eaton this week when the Club name that specializes in electric components and power management systems reports earnings . Google-parent Alphabet and Microsoft are well along in their build-outs — Meta not so much, despite massive Nvidia chip purchases. We learned all that in last week’s flood of earnings. But It will happen. It’s why Meta stock is a buy a tad lower as stocks tend to revisit those kinds of declines. It’s also why Nvidia shares surged 15% last week as tech companies keep buying up all the Nvidia chips they can get their hands on. Travel American Express led the financial side of travel. Raytheon and GE Aerospace led the hardware and service side. That’s why the money went to those two for the insatiable demand for planes to go places. Royal Caribbean showed you there can still be pop after a period of, well pop. I think Booking gives you a winner on May 2. Watch AAR for a pullback as the sweet spot is aircraft maintenance with all planes being needed, so plenty of turnaround. AAR has gained in eight out of the past nine sessions. I was disappointed in Club name Honeywell last week as the flotsam and jetsam got in the way of aerospace . I guess we will have to reassess after the departure of former CEO Darius Adamczyk from the board in early June. The clock is ticking on new CEO Vimal Kapur’s ownership of the current regime. Delta and United airlines work for trades. I don’t know what to say about Southwest Airlines so I will say nothing. Housing Housing is the counterintuitive one. But these companies are exercising restraint. If you build half the houses you did when you have half as many people in this country, then you have an artificial shortage that makes for fantastic gross margins and orders. I think Toll Brothers , which was an awesome buyback, works well. But so do Pulte and Lennar . They all have similar playbooks. Oddly, you can’t recommend Lowe’s or Home Depot off this, but they are levered to turnover and renovation and we just don’t have enough. I worry about Club stock Stanley Black & Decker for this reason, but the dividend will keep it propped up for now. Only Azek seemed to resonate. Banks The banks are digesting a move for the ages and exercising their right to buy as much as they want. There are dozens of biotechs and enterprise software companies in the chute. That’s what makes us like Club name Morgan Stanley . JPMorgan deserves a comeback move. I have never seen Wells Fargo CEO Charlie Scharf so fired up as he was this quarter: that fee juggernaut cannot be denied. Wells Fargo is leaving its yield protection, but it has all the right stuff both for higher for longer because of good returns on savings or a Fed cut, which bank investors love. Consumer staples Oddly consumer staples, Club name Procter & Gamble and then Colgate , look fabulous — no doubt from raw costs going down but no price cuts to the consumer. This bit of outrage, based on trusted brands, works. Chipotle is the other company that’s been able to pull this feat off, raising prices in California to meet the cost and seeing no falloff. I am worried about McDonald’s , which reports earnings this week, as it has a franchise model and I bet they balk. I am more worried about it as it just moved up on no news, allowing people to believe the worst is over. I don’t the optimism. Bottom line Aside from all that, I just can’t rave about any other sectors. Drugs it’s all Merck — boy, was that a horrible quarter for Bristol-Myers . Follows in the footsteps of the mediocre Johnson & Johnson . I detected a white flag from PepsiCo on U.S. carbonated drinks, which could mean a breakout for Coca-Cola , which reports earnings this week. Energy, you need to go with the refiners, not the majors — and if you insist on the minors, watch Club name Coterra Energy and highwire at Diamondback as well as a turn at Devon . Stay away from the drillers after the SLB disappointment and the European oil companies seem played out. I wish I had more but this market doesn’t avail you of more. You can take it as it comes. But remember if you deviate from the winners, say, in tech, and settle on losers, remember they have all been jacked up by Alphabet and yet Alphabet is only good for Alphabet and that’s been played out. I hope you watch Nvidia founder and CEO Jensen Huang on “60 Minutes” on Sunday night (or watch the reply on-demand). The man I call a modern-day “da Vinci” should show you why he deserves his stock’s premium even as it turns out in retrospect to be a discount. I hope you see how nice and kind he is. And, yes he does use those terms. 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Can it outrun inflation? Is there more demand than supply? Does it make sense at this point in the cycle?Does it play into current events? Can it be linked to travel? Can it be put in a data center? These are some of a very small handful of themes producing wins at this point, in what is developing into one wild earnings season.
Let’s dispense with the macro before I get into what’s working and what’s not. We have two events with “big bang” potential and views of the outcomes that will be tinged with politics because we are closing in on the election.
