The Daily Dose: Don't Lay Idle in This Freakish Market

 | Aug 05, 2013 | 9:00 AM EDT
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Man, I tell ya, I looked under every rock over the weekend in an effort to get a little bearish into the beginning of the slow post-earnings-season news cycle -- a time when stores get fabricated and appear out of thin air.

I even dug back into the July employment report, with the goal of uncovering something, anything new to wave in the face of the muscular bulls. Alas, I came up empty. All I found were the same tired reasons that the market has chosen to ignore for years -- a persistently elevated underemployment rate, a lack of summer gigs for teens, people leaving the workforce and awful wages and workweeks. What a waste of time and effort this was. I could have been tweeting, instead, in pursuit of garnering 10,000 followers by year-end.

So, with a cup of iced Starbucks (SBUX) in hand (Trenta Red Eye), I again went through the now-dated Federal Reserve release as if I were studying for the GMATs. This netted me a similar conclusion to what I conveyed to clients immediately after the jobs report.

"Remember, as long as the Fed pushes off acting on reducing its pace of bond-buying, any negative economic data surprise will be viewed in the context of a one-off related to June's spike in rates. Although a jobs number at +200,000 would have added gas to the rally, a +162,000 print and -26,000 in downward revisions aren't enough to reawaken the bears."

The market, as is the new norm, is on freakish autopilot. This is dangerous, because the party will eventually have to conclude.

But it's also dangerous is opting to lay idle in cash. Leading stocks are leading. Leading indices are leading. Market dips are shallow. Investors are already looking at third-quarter earnings season for a sequential acceleration in the earnings-growth rate. As a result, stocks are pricing that in, and then some, into today's valuations. The final proof of this feel-good atmosphere can be found in various charts.

Five Growth Stocks Being Sent to the Moon

Investors are blindly buying growth names, probably forgetting that it isn't exactly healthy to value a stock on a price-to-earnings ratio of 30x forward earnings (or more) in order to get a piece of 15%-to-20% long-term earnings growth. Nonetheless, the liquidity madness on the Street will continue triggering this -- until it doesn't.

The stocks below have all trounced the S&P 500 (in light blue) in the last month: Starbucks in dark blue; Chipotle (CMG) in red; Mohawk (MHK) in dark green; Lumber Liquidator (LL) in brown; and Michael Kors (KORS) in light green.

Growth Stocks

Source: Yahoo! Finance

Four Leading Indices Doing Their Thing -- Leading

The indices below have all outperformed the S&P 500 in the past month, even despite hearty valuations and technicals that suggest an overbought condition. At this point I am unsure if these indices are moving in advance of robust global growth (led by the U.S.) that's set to come in the third and fourth quarters, or if it's on pure "hopium," tied to easy Fed policy. It's confusing stuff indeed.

Indices pictured include the Russell 2000 (in blue); the iShares Dow Jones Transportation Average (IYT) (in dark green); SPDR S&P Retail (XRT) (in brown); the Claymore/Clear Global Timber Index (CUT); and the S&P 500 (in red).

Leading Indices

Source: Yahoo! Finance

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volatility is quite low here, and we could see some downsides here in the short term. ...



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