Plenty of stocks are working in this market — just look beyond tech

We are in one of those markets where nothing goes right. The pain starts early, with evening S&P and Nasdaq futures giving you a double dose of red. But the reliable S&P Short Range Oscillator hasn't been oversold enough for you to hold your nose and buy something. So you feel like you're sitting on your hands. But the relevant word in my first sentence is “seems” because there are actually a lot of things working – so many that it raises the question of what is actually wrong with this market. Consider the case of Wells Fargo, which had a price-to-earnings ratio of 12 and a quarter that was generally disliked by the analyst community despite some sloppy price target raises. I was so excited when I talked to CEO Charlie Scharf that he said he was going for broke, using his franchise power to expand into mergers and acquisitions as well as initial public offerings. From where? In 2008, Wells Fargo acquired Wachovia, which had previously merged with Prudential, AG Edwards, and First Union; The latter had actually purchased Wachovia but kept the name because it was considered a better brand. These brokerages were all very good and doing a lot of business. But they disappeared with the Great Recession and the consolidation of it all under Wells Fargo, which would soon handle many regulatory issues. Although the bank has a national footprint, it has arguably done fewer mergers and acquisitions than the likes of Centreview Partners and Lazard, and you wouldn't think of Wells as an insurer either. This is unacceptable to Scharf, who knows everyone in the industry and is aware that there is talent that could be missed at rival banks. JPMorgan, for example, has a lot of executive talent that was passed over because CEO Jamie Dimon, with whom Scharf worked for 24 years, decided to stay at the helm much longer than anyone thought (20 years and counting). Charlie knows that in the new world of artificial intelligence, you can do much more with less. It eliminated roughly 23% of its workforce, became much more efficient, and realized the limited value of bricks and mortar, although its bank had a more local feel. So what he does is he assembles a team of very senior bankers who could run JPMorgan or any firm if there were an opportunity, and he tells them to create M&A and underwriting, which has much better margins and lower risk than lending. It works. It is getting deals and moving up the global mergers and acquisitions league table. I bring all this up because Wells Fargo's stock fell on analysts' comments and then rose when smart people who spoke directly to Charlie and not through the filter of NIM-NII-obsessed analysts realized he would at least give Bank of America and Citigroup a chance to make money. In two years we'll be laughing at how wrong the analysts were. In a bad market, this kind of revival does not happen. But no one is focusing on what's going on at Wells Fargo yet. JB Hunt is a similar story. We watch the trucking and logistics recession in both its depth and length and marvel at the group's lack of resilience. But over time the cycle continued as it usually does; Weaker players collapsed and then prices rose to the point where JB Hunt reported a terrific upside surprise this week. Even when the stock was waiting to explode, you still made money. This is a big reason why we highlighted FedEx Freight and added it to our position earlier this month. The company, which spun off from FedEx on June 1, is keeping cyclical headwinds in the background. Or consider biotechnology, a group that almost never disappoints. Not this time. The top biotech ETF, SPDR S&P Biotech, is up more than 27% this year even as most professionals say inflation is accelerating. There is a huge wave of biotech acquisitions, and not all of them include companies acquired by Eli Lilly. This is a bull market group, and while nowhere near as significant as chip makers, it's important to recognize that the rise in biotech is a sign of a very positive trend in stocks. Or consider something seminal that was completely overlooked amidst the multi-tech wreckage: Stripe's proposed acquisition of PayPal. We always hear about what great work Stripe is doing, so I have no idea why it felt the need to acquire PayPal, which was in some kind of sick spiral. But consolidation in this fintech space could be incredible for a market with so many players: Fiserv, Global Payments, Toast, Fair Isaac, Block, Affirm, and the like. We're starting this merger and acquisition activity and we're able to consume at least some of the new stock coming into the market. Finally, if you have a half-decent story to tell in retail, as in Target, or in rail, as in Union Pacific, or in airlines, as in Delta and United, you'll make a good percentage gain that will help your overall performance for the year. Which brings me to the real issue of what's happening on this tape right now. The fact that I can piece together half a dozen positive developments happening right now compared to what's going on in technology tells me that the market is trying very hard to impose some discipline on tech companies. Think of it this way: Right now, with the seven days of earnings we have, if you report a good number, your stock will go up, and if you report a number that isn't initially perceived as good, your stock may still go up; Think Wells Fargo or even – for example – PepsiCo. But in technology, everything you touch can destroy you. Consider hyperscalers. For a moment, it looked like we were going to see a trade where hyperscalers would start to rise as component stocks peaked. It seemed too good to be true, and it was. We've had a few good days that drag you back to Microsoft, Amazon and Google. They then began their journey downwards again and could continue downwards; I discussed this issue at our July Monthly Meeting on Thursday. I had been thinking about this thesis for the meeting, but when I saw how much money was being made from that sweet SK Hynix trade, I thought I was wrong and thought that even after the SpaceX and Cerebras deals, there could still be quick money to be made in IPOs. But SK Hynix turned out to be a one-off - others might call it fixed - and everything related to data centers will still face a rough ride. Some of the pain stems from the huge amount of leverage now in anything memory-related, including Seagate, which rose curiously on Friday, as well as Western Digital, Sandisk, SK Hynix, Micron, Arm, AMD and Intel. This trade is unraveling at such a furious pace that we've had to step back from trying to be disciplined buyers of Intel because the sellers are endless and stretched and there's no telling when they'll end. Trust me, Intel is a great buy here, but it could still fall if the hedge fund community tries to block people borrowing money to buy these stocks. We added to our position twice last week. As confident as I am that Intel will make it work, I don't like going down that quickly on a trade. I actually prefer to buy on the go. I know I'm not alone in this. Relaxing is a form of discipline. If you look at what happened to SpaceX, for example, you can be thankful that insurers did everything they could to make sure everyone made money. They priced it as intended and put it in good hands as requested, but then it was taken over by memesters who thought they could manipulate one of the top 10 stocks by buying overnight. Welcome to the real world, friends! SpaceX itself speaks of a discipline in itself. Generally when you own a brand new security it cannot or should not be shorted. Most of the time, brokers will tell you that they can't find stocks they'll lend you to sell short. But this time, that doesn't seem to be the case. It seems that underwriters have a good handle on where all the stocks that will be unlocked soon are, allowing short sellers to match their short positions with shares that will be unlocked over time. So this isn't technically short selling, so it's legal, or at least it's okay with this government. The decline in SpaceX's shares appears surprisingly steady; just like some of Tesla's earlier sales, where true believers enjoyed the opportunity to buy more at better prices. This hasn't led to much larger sales related to space, energy or self-driving cars. The big unanswered question is how long such terrific opportunities outside of tech can exist before those overweight in tech realize they're not making enough money and aren't worth the risk. There are no bubbles in technology. For those with extra memory, like Amazon or Meta, the possibility of an explosion in 2027 could explain what we're seeing. But if we continue to see easy money being made in other sectors this earnings season, I understand the money will come out of the tech sector. If you are passionate about technology right now, you must be worried that every day seems very dangerous. It turns out the technology is attached to the railroad tracks and somehow gets released just before the locomotive crashes, only to be reconnected the next day. Eventually you realize you'd rather be on the train than avoid hitting it. So I say: all aboard. 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