The Day Ahead: How to Build a Worry List

 | May 13, 2013 | 8:15 AM EDT  | Comments
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Stock quotes in this article:

tjx

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bby

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urbn

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wmt

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jcp

Mother's Day has multiple components. There is the basic of buying your mom a price-gouged tulip arrangement from the Fairway (had my first experience in this store and now get the IPO interest). Then dinner with the family, where son reassures mom that the price-gouged flower can be planted outside. Naturally there is the internal slideshow playing throughout the day, the one that reflects on all of mom's wisdoms shared over the years. Without question she taught you oodles, best to never forget that, even if it's not cool to be gushy with her in public.

To pull a page from my mom's playbook titled "Ridiculously Worry About our Kid," I think it's OK to build a worry list as the market has seemingly gone haywire. I am disturbed by the stock market being able to shrug off any iota of badness, buy in advance of a mysterious 4Q13 GDP pickup and believe that with subpar margin stories, corporate America deserves richer multiples and juicer profit estimates. At some point, and it's nearing, there will be a greater appreciation for negatives in the market and the return of the thesis that Fed easing won't save everything that ails companies and the global macro system. So it's best to be prepared, like today.

As the developments on this list materialize, you should be watching price action in individual sectors and the overall market into the close of trading, since the theme of late is to buy into the close.

Retail Sales

I wanted to say this report was borderline meaningless in light of the solid reads from the April same-store sales releases. But I changed my tune.  Retailers like TJ Maxx (TJX) are noting that following a sluggish spring, sales reaccelerated towards the end of April and into May. The government report  reinforces that view, given that consumer discretionary, particularly retail, has caught pretty strong bids in the recent rotation from defensives. Remember from a week ago, my current pick is Urban Outfitters (URBN). Best Buy (BBY) continues to intrigue me as well following a chat with the company (e-mail me if you want to learn more).

Empire State/Philly Fed

These reports were included in the list of negative April surprises. The market yawned. Another round of letdowns and the market may decide not to yawn. Focus has to be on the employment and new order indicators amid the bullishness that has developed on the jobs market (due to claims trends and the April employment report).  If the consensus is to be proven correct that a spring economic fling is ludicrous to ponder, forward-looking data must serve as confirmation.

Wal-Mart

The company was optimistic on its spring sales potential as tax refunds hit mailboxes. It's put up or shut up time now. Domestic store traffic and same-store sales have to paint a picture of less financial stress on households.  Personally, I remain no fan of Wal-Mart (WMT) shares, believing the relative outperformance of the stock since the prior earnings report was a function of investors clamoring for yield.

Just Be Careful on JC Penney

I prefer to stay on the sidelines with JC Penney (JCP). Yes, the company has secured funding. But as seen in this video, the stores continue to be a mess to a degree that a somehow decent 4Q13 is highly questionable. The cash burn continues to be a serious concern (just because a company has secured a new source of outside financing doesn't mean it won't burn through that quickly).

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