The Day Ahead: Protect Your Soul

 | Jul 26, 2013 | 8:00 AM EDT
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Friday Tweetable Quote: "Earnings season will thieve your soul if you let it. Don't let it, ever."

I received a bunch of emails asking about what triggered the market's epic reversal Thursday afternoon. Since I was neck-high in earnings preparation and general number digestion, I didn't even realize the market had rallied.

But the turnaround is, of course, a life-changer (said tongue in cheek), it was entirely due to a story from The Wall Street Journal that the Federal Reserve will likely sound dovish at their meeting on July 30  and July 31. I also think this is likely, considering that we have received a spate of mixed macroecomic data of late -- notably in new-home sales, existing=home sales, building permits/starts, retail sales and durable goods orders.

The takeaway from the market's hourlong exuberance: the rally in stocks is more leveraged to liquidity expectations than it is to corporate earnings and the future of companies. It's sad -- and pretty lame.

Five Deep Thoughts for the Weekend

That said, I have an abnormal amount of notes emanating from this particular earnings season. They're notes from earnings-call transcripts, from live calls I have listened to, and from chats I am having with companies after their earnings releases. It's becoming a bit overwhelming, really, and obviously I can't share everything here for a number of reasons. Nevertheless, these are the five things I will be wrestling with over the weekend.

1. Consumers remain value-focused which is why GNC's (GNC) Gold Card program has been a hit. Company beat on earnings and raised its fiscal 2013 guidance, in line to my thinking in this video that I did for The Street.

2. Companies are continuing to note that the third quarter has started in a so-so fashion. Names triggering concerns include Cheesecake Factory (CAKE), Landstar (LSTR) and Monro Muffler (MNRO). Moreover, analysts are trying to penetrate the brains of consumer-company executives on traffic trends in July. You can hear the nervousness in their voices -- and when these people are nervous, they bring out the downgrade hammer.

3. McDonald's (MCD) is losing as Dunkin Donuts (DNKN) and Starbucks (SBUX) come up with stronger non-breakfast items.

4. Take a look at this comment from Pulte's (PHM) CEO: "Even the recent rise in interest rates has had little effect on overall activity." Remember, it's similar to what Toll Brothers (TOL) recently said, but it doesn't mean higher rates haven't hurt business: 

5. Mental note: Companies with mediocre third-quarter beginnings are following the spike in rates.

Starbucks Is Still Yummy

First, watch and read this on Starbucks. As seen in that video, Starbucks has now smashed through my firm's $70 price target. Yum! The quarter was "powerful," to snag a quote from visionary Howard Schultz. In getting my head around the longer-term potential for the company following a night of analyzing, I fancy there is juice left in Starbucks shares to the upside. These are three large takeaways:

First, Starbucks is not hastily expanding into new product categories in order to drive sales and wow the Street. Each decision is carefully thought out, and proving beneficial both to sales and to operating profits.

Second, Starbucks is not recklessly opening new stores all over the globe. Although the square footage growth rate is high, the stores are driving profitable sales.

Finally, it would appear that -- through a better product price-value equation, and the closure of poorly situated stores -- Starbucks Europe has turned the corner.

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