The Day Ahead: What's That Smell?

 | Mar 26, 2013 | 8:30 AM EDT
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It may be hard to believe, but there was a period in my childhood where causing calculated mischief was the rule rather than the exception. The cool thing was that nobody ever suspected me of wrongdoing because my grades were great, and saying "Thank you" and "You're welcome" were frequently part of my vocabulary. One game I played with friends in the pre-Facebook, iPad era was lighting a paper bag full of dog droppings on fire. This describes my view on the market as we head into a jam-packed economic release schedule and typical pre-earnings season angst.

Those with ulterior motives have presented you with a bag that they swear contains a tasty sandwich. In reality, it's a stink bomb with an iPhone 5 remote detonator. The market is not acting well, plain and simple. We could sit here and debate Cyprus, the grandiose nature of the U.S. recovery, wonky Shiller, P/E and ratios dating back to the year 1709, but the market is sending messages that demand respect.

If you really want to be too cool for school, recognize that the Dow has done nothing since: the March 14 record; Alan Greenspan's stocks are undervalued call; Warren Buffett's post-Heinz (HNZ) interview in which he was totally digging stocks, per usual. To see Mr. Market's feelings, jump outside the comfy confines of the daily grind and place stocks in a picture that began developing mid-month. It's OK to dial in charts that have a one-month view (I promise your screen won't melt). Consider these nuggets of inspirational wisdom:

  • The market is ignoring the good U.S. data, more recently on manufacturing (Philly Fed, Chicago Fed, Richmond Fed). Looking at a subset of March's economic releases, we are on the path for another 200,000-plus print on non-farm payrolls. However, with a modest shift in tone by Fed chief Ben Bernanke, the primary setup as we near jobs day is "sell the news, job gains are unwelcome." Obviously once we arrive at jobs day, the sentiment backdrop may be different as those future concerns are priced in today.
  • Think like a reasonable person: Is that next gear in U.S. data in the cards near-term? You know that blowout number that destroys the new shorts and signals a fresh leg higher in stocks? I am still searching, but will circle back.
  • The SOX Index has been a reasonable indicator on the staying power of the market rally. Unfortunately, it died out a few sessions before the Dow record (despite Texas Instruments (TXN) averting an earnings warning).

Source: Bloomberg

The alternative is me stuffing your head with useless Cyprus stats and opinions. I just don't feel that's valuable given the many other happenings in the market, one being investors have become too trusting of politicians we didn't elect. Nevertheless, as I wrote Monday, don't be so quick at the draw to buy the dips on fear you will be missing an opportunity of a lifetime. Let the market stabilize, if so inclined, to trade the monster. Or, if apt to invest by the book (longer term), scour the now-cheaper valuations to uncover where the market may have overreacted (stock sold on market risk, not specific risk).

Research in the Works: Wal-Mart

I have been chatting with a couple of Latin American contacts on the perception of Wal-Mart (WMT) in their respective countries. Since the stock continues to be en fuego for whatever reason, I thought this a worthwhile exercise.

Top Four Takeaways

  • Wal-Mart is definitely not the low-price leader.
  • Hypermarkets are trusted destinations for food and general merchandise. Relationships are built with market owners over the years, plus prices could be negotiated.
  • Many are still lacking awareness of the Wal-Mart brand as the stores are spread far apart.
  • Poor infrastructure makes it difficult to cater to local needs.

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