The Day Ahead: Grab Yourself a Stock Today

 | Aug 06, 2012 | 8:30 AM EDT  | Comments
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Doing anything today? Maybe it's a sweltering round on the links with that new, sexy, white-headed TaylorMade $400 golf driver you neglected to tell the wife about? Maybe, instead, you've got plans to water the tomato plants and spray them with chemicals to boost their size for Facebook (FB) photos? (In that latter case, make sure to use Scott's Miracle Gro (SMG) -- management really needs your help to hit an earnings number, for a change.)

In between these very exciting undertakings, take a swift second and go buy a stock today. It's a new week and, presumably, there are new themes to be churned and burned. Well, to be honest, there are no new themes as of right now. But if history has been any guide, when the negative news flow dies down into smoldering embers, there'll be some opening for a positive spin on the global economy, and for markets to entrench themselves for a short duration.

There is nothing wrong with a feeling of distrust in Friday's rally which, amazingly, seemed to have been spotted by everyone earlier in the week. I was content to stay defensive for the majority of last week. After all, defensive stocks have continued to show a willingness to support price-to-earnings multiples above 15x, the market was horrifically choppy from Monday to Thursday and there were numerous grenades just lurking in the rice patties, such as in Abercrombie & Fitch (ANF) and Aeropostale (ARO).

In my view, in this environment, it's not about being in the market for a one-day move in the green that may fail to surface. It's about studying that move to see if it's sticky and playable for more than a single session. That is what which this buy-and-hold stud at heart has been relegated to these days: splitting up the week into pieces from which to pick a stock or two. Sigh.

Assorted Fun Reasons to Buy a Stock Today

First, I don't believe anyone is expecting anything from economic data out of Italy, the U.K., Spain or Germany this week. Most of the headlines are expected to worsen month over month and lie in negative territory. Also, join me in studying the market's response to any downside surprise from the "Draghi Effect" -- that is, European Central Bank President Mario Draghi's verbal comments serving as a backstop to sentiment on the European Union for the near term.

Wildcard of the week: That honor goes to China, and these two eyes will be on the retail sales numbers set for release Thursday. I think there is risk of disappointment here. McDonald's (MCD) said more promotions were needed to drive sales; Nike (NKE) noted a slowdown; Coach (COH) said sales were fueled more by new unit openings than they were by same-store sales growth; and Starbucks (SBUX) didn't wow me with its China commentary, either.

Still, earnings season is done, for the most part. As for the real possibility of third-quarter profits declining year over year and sequentially, the prospect is so far off into the future for this crazy market that it's laughable. Negative adjustments to forward earnings estimates have stabilized, allowing for stocks to begin to price in whether slightly improving U.S. macro data could stall or factor in third-quarter surprises for many companies.

Furthermore, the market remains in love with the July jobs report. Try as the bears might, sentiment was not shaken by the "soft underbelly" of the more inclusive U-6 unemployment report, nor by the weakest wage growth since 1965, with under-2% growth for 12 straight months.

The opinion is that there was upside, but not enough to remove the possibility of action from Federal Reserve. Revisions were modest, but June was revised lower, meaning an unhealthy economy, which brings us back to the Fed. Plus, manufacturing gave ground in August. In other words: Fed, Fed, Fed. All of these are factors, says the prevailing view, that should keep Fed chief Ben Bernanke in line to set the groundwork for a Santa Claus rally, starting with his comments in Jackson Hole, Wyo. -- the unofficial Federal Open Market Committee meeting.

So go buy a stock today -- but if you subscribe to my hunch, chill on reaching for a defensive yield grab. Cyclicals would be where to look.

Retail Earnings Onslaught Begins

Earnings from department stores are slated to kick off retail earnings season this week, with key names including Macy's (M), Polo Ralph Lauren (RL), Kohl's (KSS), Nordstrom (JWN) and J.C. Penney (JCP). Here is what I will be watching for.

● How bad was the hit to consumer spending in June and July? On its second-quarter earnings call, Starbucks set off mass hysteria on Wall Street by noting it had experienced a noticeable change in customer traffic in each month. Any sharp falloff in demand will immediately bring negativity on the holiday-season outlook.

● How are retailers are reinvesting their savings in commodity costs, specifically in cotton? Some early signs have centered on driving increased advertising to make sure store traffic is maintained. Others are ramping up mobile checkout and capabilities in online-to-store merchandise pickup.

● How are retail stocks trading on what should largely be negative second-quarter trends and full-year guidance? If we see positive price action, this may be a spot for investors to buy the market-share winners.

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