The Daily Dose: Even Words Won't Break the Market

 | Jul 10, 2014 | 10:00 AM EDT
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"Participants also discussed whether some recent trends in financial markets might suggest that investors were not appropriately taking account of risks in their investment decisions. In particular, low implied volatility in equity, currency and fixed-income markets as well as signs of increased risk-taking were viewed by some participants as an indication that market participants were not factoring in sufficient uncertainty about the path of the economy and monetary policy."

And those are basically the most relevant words of the Fed minutes. Well, were they? Not according to the market, which chose to once again focus on the positives. Not even a suggestion by the Fed of quantitative easing ending (for the time being) in October was able to derail the stock market. What in the world is going on here?

I, for one, am now more concerned than ever that the market is inching toward an ugly plunge between this very morning and that weird time post second-quarter earnings season (the end of August when there isn't a ton of corporate news, and the macro and Fed musings will dominate).

Stocks simply can't continue along this path, as one of the main drivers of the rally, if not the only driver of the rally, QE, is coming to a conclusion. What will occur when Wal-Mart (WMT) issues a holiday quarter sales warning after Black Friday in a land without QE? Have an idea on how the market will react when rising rates dent home sales in the spring selling season of 2015, and there is no QE to fall back on? These are the thoughts that you as an investor must be having right this second, as well as placing a greater emphasis on the selection of high-quality stocks for the portfolio.

Remember, in the fast-approaching world without Fed liquidity injections, those companies with strong products and services will be scooped up by money managers at higher valuations. Junky companies will be valued as junky companies, and solid companies as even more solid companies, because the junkier names look horrible.

'Retail Funk'

Right now, and I find this increasingly odd given the improvement in the labor market, there are only three times when consumers will venture into something defined as retail (stores or online). First, when they absolutely have to, usually after a break in the weather or during a holiday sales period. However, even holiday sales periods haven't been what they were, because most retailers remain on constant promotion. Second, if when they are in the store there is a product with a serious amount of innovation not found in their closet. For example, Under Armour (UA) continues to win, because the merchandise is innovative and enhances a person's daily life. And finally, the last trip is food.

The willingness of the consumer to shop, say, on a Tuesday evening with their credit card after thinking about a product all day just isn't happening. Sure, there will always be exceptions, but the average household continues to be reserved in how it spends money, and where it's being spent. Great example of all of this: the comments from Wal-Mart this week, which I found disturbing from a company perspective and a broader economy perspective.

Also, the "retail funk" is partially being created because there is all sorts of new competition for consumer dollars. Should someone be saving up for the Apple (AAPL) iWatch that he or she has been hearing about? Should they get the latest Apple phone? All of this affects sales at specialty retailers, for instance.

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