10 Things on a Straight-Down Market

 | Feb 03, 2014 | 1:36 PM EST  | Comments
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Stock quotes in this article:

tsla

,

twtr

,

FB

,

gme

,

bby

,

amzn

,

sbux

,

tgt

,

wmt

,

BA. BBBY

We've got a straight-down market. Doesn't matter if it is good or bad, reported a terrific quarter or a horrendous one. Almost all stocks are coming down.

What could be the reasons for such an endless decline?

Let's tick them down.

1. People are living in fear of a second weak employment number in a row and they should be. My work on the employment number that I did for "Get Rich Carefully" is that one weak number can be excused away, but two? No, people will be talking about a dramatic slowdown in the economy whether you feel like it is true or not. We can asterisk it with the weather, but the market asterisks nothing. It just takes stocks to the woodshed.

2. The consumer packaged goods, the foods and the drugs and the staples are acting as if it is the end of the world, or at least the developed world. The declines for these stocks are breathtaking. When the world slows, these stocks go higher. But they aren't and people are really getting nervous that the safe havens aren't safe, even with Treasuries so low in yield. It is a quandary, one that the charitable trust is buying, but only gingerly.

3. Only the least-moored-to-value stocks are rallying. Tesla (TSLA) doesn't come in. Twitter's (TWTR) on fire and maybe on fire no matter what. Facebook (FB) is galloping much higher and is pulling huge amounts of high-growth money toward it.

4. Retail sales are monstrously horrible. I can count on one hand anybody who is doing well and most are hoping just to be mediocre. The weather, again, is so bad that you have to take retail with a grain of sale. But this isn't typical action and many are totally thrown off about where the shoppers have gone. First, we thought that the consumer had gravitated from soft goods -- clothes -- to hard goods. But then GameStop (GME) and Best Buy (BBY)  reported terrible numbers. Then we thought that perhaps the world had gone online, but then we got a less-than-superb number from Amazon (AMZN). All through this period is the reverberation of Howard Schultz' admonition that mall shopping as we know it might be a thing of the past. It's not usual that we get such declarations and everything in the mall, including Starbucks (SBUX) -- even as it is hardly a mall retailer -- just keeps getting hit. The numbers for the big discounters, Target (TGT) and Wal-Mart (WMT) take your breath away.

5. Aerospace had been a linchpin of growth, but ever since Boeing (BA) reported its quarter, the group has given up the ghost, even as there is absolutely nothing to indicate that there is a slowdown. Nothing. And I really think this group is buyable, particularly because of the strong airline numbers. I feel I am alone.

6. The government pancaked us. Washington basically declared war against business and the consumer with the shutdown, which turned out to be much worse than the fiscal cliff, and the healthcare fiasco, which is with us more than ever. Obamacare is just a non-starter with the American people and has sapped our confidence. In the meantime, the pullback in food stamps is especially poorly timed. Just awful. Now we are hearing talk about the debt ceiling and how Treasury Secretary Jack Lew is worried about the government running out of money. The economy cannot afford another showdown, but Washington doesn't care. The average showdown has cost the market 5-8% each time, so here we go. Oh, and let's not forget the cutoff of extended unemployment benefits, while at the same time the ludicrous sequester is still in place. I do not know how the government could be more out of touch with the people.

7. A new Fed chief has come in at precisely when we need the steadiest hand and, while rates are way down, the Fed is no longer as good a friend as it was. That matters. Janet Yellen may be exception, but she is being tested and tested hard now. Last summer the Fed smoked the short sellers with its huge bond buying as 10-year rates looked like they were through 3%. Now it looks like they are headed to 2.5%, a sure sign that things have slowed head in this economy.

8. The emerging markets are in a severe downturn and those have been the saving grace of so many of our companies because they are growing as a consequence of having more children. Right now the turmoil is so severe it is bleeding into so-called good countries. All our government does is blather about free trade and immigration when we have a surplus of labor and the counterpart countries send much more here than we export there.

9. Commodities are in collapse and normally that would be a good thing, but all it is doing now is suggesting that China's not having a downshift, but a screeching halt. There is no information suggesting that is not the case, even as many of our companies have said point blank there is no slowdown. It doesn't matter. China being written off, even at a time when Europe coming back, is just plain bad news for the stock market. It can't be ignored.

10. Finally, the meaninglessness of the earnings reports. There have been so many good ones, but they have meant nothing, nothing at all. People were crowding into the hypergrowth stocks, but even that has come to an end today. There seem to be no bargaining hunters, just bargain haters and the technicals, which are so important, are just plain hideous (although eventually we will be oversold). We aren't yet and that means the downward sloping charts without support near here are in control.

I had been saying for a little bit now that I haven't liked the market all that much and that's been right. We are carrying a very high amount of cash for Action Alerts PLUS because of that negative view, but it is time to do some small picking, betting that the selling will prove at some point -- it isn't yet -- to be overdone. The sellers keep coming out of the woodwork, nonstop at every level.

In the end, I find it really hard to be too negative after we have come down during a period where I was looking for and am getting a pullback. We remain the strongest of nations with the best natural resources in years and lots of opportunities to grow jobs if the government were to take it, perhaps with a repatriation of money held off shore with a tax placed to fix infrastructure. The poison in Washington shouldn't defeat such a common sense idea. All that said, it is hunker-down time coming out of the foxhole to pick at your favorite companies at much lower than expected prices after much more sound earnings. The logical first step? Same as the 2009. Go for the accidentally high yielders. Worked then and it will work now.

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