The Day Ahead: Have What it Takes to Survive?

 | Jun 05, 2013 | 8:00 AM EDT  | Comments
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

dg

,

cost

,

wmt

The next three days, assuming you are engaged intimately with the stock market, will be brutal tests of intestinal fortitude. If you are not living and breathing the market tick by tick, then the weekend periodicals will be painful lessons on concentration.

The amount of information that is going to be unleashed on investors borders unbearable, and I strongly encourage not mailing it in (with respect to the analytical process) by latching onto the first semi-plausible buy/sell/hold thesis that materializes. For it's those that jump the gun in life and investing that are the ones that get mutilated by some form of speedy moving object.

I really prefer to refrain from adding baggage to the laundry list of things on your preparation docket this very second. So here is a bunch of brief, but informative, bits of information to keep handy as the winds of insanity blow.

Action Plan

The "bad news is good news" investment thesis is showing itself to be weak in nature (why: stocks across sectors are being dumped in full gaze of bad macro news such as the ISM, with Mr. Market knowing that a report of that manner forces the Fed to stay the QE course). I am concerned that if we print modestly below on headline non-farm payrolls (where I reside) estimates, nothing on the topic of this "taper fear" jargon will be resolved. Print slightly above the consensus and what do we have: a maintained pace of monthly bond buying, no increase.

As I noted a couple weeks ago stock valuations were beginning to price in a step higher in QE efforts; there is probably a touch of that stench still lingering in stock valuations today. Not too hot, but not too cold May employment and the spotlight likely to return to disappointing domestic data earlier in the week (ISM), in addition to mixed reads on the EU/China.

The call:

  • Risk reward weighted to the downside, be a pig at your own peril.

Risks to call:

  • Gigantic headline jobs miss, all bets on QE tapering (grr, hate that term, but roll with me nonetheless) immediately removed. Stocks initially pop.
  • Gigantic headline jobs beat, animal spirits perceived as grabbing hold (despite government spending cutbacks), we can have QE at a range of $50 billion to $70 billion a month (down from $85 billion) into yearend as the Fed will want more source data before tightening the noose the next notch. This outcome would offer a nice sweetspot for now "oversold" equities.

3 Charts to Use, No Matter What

Pick your sectors and individual stocks carefully no matter the May employment figure, the economy is creating jobs but not the healthy levels of inflation that spur virtuous circles. In a virtuous circle kind of world, the savings rate would increase, a function of incomes outpacing even upgraded spending plans. Look at how these views play out in the charts below!

Source: BLS

Source: BLS

Source: BLS

Randomness

  • Dollar General's (DG) quarter and comments were worse than many think, in my opinion. Too many store remodels happening at once (ditto at all the dollar stores) that is causing operating inefficiencies on already slim profit margins.
  • I did not like this from Costco's (COST) quarter: Profit margins in Costco's four product categories (food and sundries, hardlines, softlines, and fresh food) were lower compared to the prior year quarter. Costco is investing in price both domestically and internationally (sort of like the ongoing initiative at Wal-Mart (WMT)) to widen the price gap on merchandise relative to competitors. The issue is not necessarily that profit margins were down, as Costco's business model is focused on facilitating a ton of traffic driven sales to greatly offset operating expenses, but rather price investments appear to be accelerating. 

Columnist Conversations

PLUG is trading $42.41, down small with IV30™ up 0.2%. Conclusion PLUG is not in equilibrium... It cann...
So far we're seeing a nice counter-trend rally off time/price. If you are in this one, please trail up stops ...
Deere & Co is holding near key support as August comes to a close. The stock first tested the initia...
With just under 2 hours left in the trading day the markets are relatively flat, trading off the lows experien...

BEST IDEAS

REAL MONEY'S BEST IDEAS

Columnist Tweets

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.