Definitely have been feeling like my old self of late. Every so often in this business you go through stretches where the feel for the market temporary vanishes.
During those weeks where my appearance commitments are clustered together, the ability to watch the tape in a lunatic fashion falls by the wayside. After a mixed start to February call-wise, I think that feel resurfaced in the second week of the month. As you recall, that was what I coined "stall week" for the markets. Last week was "sidewalk crack expansion" week, a little more volatility and a little more concern on the stamina of the rally. This week the market should be approached with the type of caution that brings hesitance on buying around even your most trusted go-to names.
A couple reasons I presented to the investing gods on Sunday night:
- In a week supposedly representing a profound/epic buying opportunity (not my words, just an interpretation), the lagging nature of the transports, small-caps, Russell, and relative outperformance of the utilities was largely ignored. It shouldn't have been ignored as we are witnessing a valid stronger tone of caution on the first quarter from retailers. Where there is ignorance, there is future surprise-factor risk.
- Trailing PE ratios on the major averages are higher year over year, which would be OK if the macro and micro supported it convincingly. But during an adjustment mode, the market will squeeze some of the premium out of owning stocks due to the future being more in line to downgraded, sell-side profit estimates.
- There is an avalanche of U.S. macro data set for release that follows strong rebounds in January (Dallas Fed, durable goods, personal income and Michigan Sentiment). This cycle of data must hint at acceleration in March in order to support the P/E expansion in the market and mark it up incrementally. I am having a mental roadblock on that happening, given what I am learning from companies.
Wildcard: Bernanke Comments
Uncle Ben is likely to reaffirm the Fed's undying, not-so-secret commitment to boost the stock market, which would be bullish. On the other hand, this bearded fella could sound less dovish than the market priced in on Friday, confirming the negative reaction to the Fed minutes. Tough to handicap event, hence wildcard status.
What You Need to Know: Coach
Coach (COH) was mentioned favorably in Barron's this past weekend. Two very important oversights included:
- No mention of business risk from a significant transformation in strategy to a lifestyle brand.
- No mention in operating strategy risk as the long-time CEO steps aside.
If so inclined to delve into the world of women's accessories, wait until the Michael Kors (KORS) secondary supply reaches the market. Watch the market's response, then send me an e-mail for further color (briansozzi@gmail.com).
Have Fun with the Depressing Sequester
The sequester is a giant catch-all word for a range of economic outcome badness. Detailed below is a guide for thinking through this government imposed absurdity. There will be added names on Tuesday.
Transportation Security Administration
The Concern Equation
Seven-day furlough for screeners + 10% of FAA on furlough = passenger wait times increase
The Trade (long)
Trapped in an airport and upset about the longer wait time? Your heightened emotional state may cause a trip to the food courts. PepsiCo (PEP) products (which include junk foods) in many instances are the exclusive vendor for airports. Note that this is a perception trade, whereby the actual bump in sales would likely be minimal at best.
I know you are thinking ticket prices up, airlines benefit, stocks higher. But jet fuel prices have increased roughly 6.8% in the past six months (spike more recent) and EU macro data has come in soft, so I would approach the airline industry with caution.
Social Security
The Concern Equation
Delays in the mailing of Social Security checks = seniors forced to delay their grocery shopping/dip into savings to make essential purchases
The Trades
Cott (COT) - Long
If a senior is forced to dip into his or her savings to eat, best believe they are going to favor private label goods purchases from Wal-Mart (WMT) grocery stores. Cott is the main private labels goods producer in the store.
Kroger (KR) - Short
Supermarkets strike me as losers from the perspective of consumer delays in buying of merchandise, a trade down to dollar stores/Wal-Mart during this period of uncertainty and possible snags in the supply chain due to food inspection workers being furloughed. Kroger's stock is acting worse than Safeway (SWY).
