The Day Ahead: A Litany of Disturbing Stats

 | Apr 08, 2013 | 8:10 AM EDT
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As I was putting together my thoughts about the market over the weekend, I was reminded of The Dead Pool -- in which a serial killer goes after a list of celebrities predicted to die in a betting pool -- and thought of what the equivalent scenario would be for investment advisors. Maybe that's just my own phobia bubbling to the surface.

At the same time, Ms. Market has seems to have created her own list of targets. I couldn't give a rat's tail about the action Friday, when the market triumphantly trimmed its losses into the close on National Employment Dread Day. Nor do I want to entertain the notion that the Federal Reserve will refrain from curtailing its bond-buying sometime in the third quarter due to lackluster job growth -- or job loss.

Instead, following are the disturbing things, today, that deserve to play a role in your decision-making process:

• The market is cracking right around its record highs from April 2. But we're not seeing convincing dip-buying into the face of negative macroeconomic and micro-level surprises. Instead, at least in my view, we're seeing ever-receding conviction.

• Even if March employment is upwardly revised, and April re-accelerates against that adjustment, growth will be slower than the average we saw in prior months. The issue at hand is that the market has front-run this possible reality, meaning an investor had better think twice before they pony up cash to hold stocks at the current price-to-earnings multiples. In theory, earnings estimates have to be tapered, and Alcoa's (AA) first-quarter earnings will offer an early clue -- though Alcoa's stock performance has suggested it's experienced three months of ugliness.

• The new highs in utilities are disturbing, and so is the March 8 peak in yield for the 10-year U.S. Treasury note.

• Amid this rally, it's not good enough for us to merely see weak hiring instead of an increase in layoffs. The market demands a faster pace of job creation. But that appears to be in question, likely due to global growth running below forecasts.

• A week ago, the top four laggard indices were the Dow Jones Transportation Average, down 3.48%; the S&P Mid-Cap 400, off 2.58%; the S&P Small-Cap 600, which lost 2.62%; and the Russell 2000, down 2.97%. The best-performing Dow stocks were Wal-Mart (WMT), up 1.56%; UnitedHealth (UNH), up 4.89%; and McDonald's (MCD), which tacked on 1.73%. This all suggests that further negative global macro surprises are lurking in the weeds.

In addition to all this, we're seeing global market weakness with no decoupling in sight, and we also haven't seen any moderation in the rout among the building materials, industrial, steel or platinum sectors. Furthermore, if you drill into the healthcare sector's dominance of late, you will observe weakness in medical supplies, an inventory-investment-heavy niche. No bueno.

So here is the deal. On the one hand, you could listen to your gut instinct and the data -- and me, since I am telling you this stuff while others blow smoke in your face. You could increase your cash weighting, since multiples are way too rich among defensives, and they could compress in a yawning pullback. Or you could be a whale, reacting in horribly slow fashion to the new waves, trying to alter your direction to the fattest plankton source.

Hot Research

I read a bunch of 10-K filings over the weekend. One revelation: Be aware that RadioShack (RSH) is not in compliance with its fixed-charge coverage ratio, and that it expects this to hold true for all of 2013. I'm very worried about its business fundamentals into the second half, and I believe any surprise will be of the negative variety.



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