The Daily Dose: Entirely Predictable Confusion

 | Sep 23, 2013 | 9:00 AM EDT  | Comments
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Stock quotes in this article:

dri

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ctas

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len

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kbh

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oc

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Ever since Fed chief Bernanke's press conference last week, the stock market has been exhibiting highly irrational behavior: The proprietor of stock prices, Mr. Market, has generally had no clue on the fair value of its products.

But, while this is disturbing, the confusion is of no grand shock, considering the increased internal turmoil at the Fed that is bound to display in its next round of minutes. Remember, Fed members are beginning to disagree with the Bernanke Doctrine not because he is a lame duck, but because the doctrine is proving to be lame policy. To me, this imparts significant risk on the early stages of a Janet Yellen Fed chairmanship, as it appears she will (if appointed) carry the Bernanke playbook under her arm while those around at the table challenge the game plan. Buckle up for a crazy first quarter!

Truthfully, I am perplexed as to what's in store for the markets into the end of the month. On the one hand, we're seeing mounting fiscal risks that most apparently believe will be resolved -- which is what makes them a particularly ugly hazard to stock prices. Then there are scattered earnings reports hitting the wires that confirm estimates for sub-2% (annualized) gross domestic product growth in the third quarter -- even as Bernanke has said he and the Fed will act as a shoulder to cry on.

If I had to guess, I'd think a range-bound market will develop until the September jobs report, which is going to reignite talk of Fed stimulus tapering and Fed-related risk into the October meeting.

Meanwhile, here are a couple of important and worrying corporate sound bites that, in my opinion, went unnoticed in last week's session.

Darden (DRI), the fast-food operator: "Results this summer are further evidence that we can expect sharper sales volatility as the slow and uneven recovery in the economy persists." In other words, the weak demand trend has become such an issue for the long term that Darden is opting to restructure its business! Bye-bye, jobs.

Cintas (CTAS), corporate uniform maker -- "When we introduced our fiscal 2014 guidance in July, we indicated our outlook was based on an uncertain U.S. economic landscape which caused delays to the hiring and investment decisions of our customers. We have not seen any evidence since that time to change our outlook of the U.S. economy."

Earnings Reports to Watch This Week

Lennar (LEN) and KB Home (KBH): An initial check I'll run on each of these firms is to take this quarter's year-over-year change in new orders, and to compare it with the year-on-year change from the prior quarter. I am trying to gauge how the summer's interest-rate spike impacted demand for lower-end homebuilders and the associated impact on the supply chain, including names like Owens Corning (OC) and Home Depot (HD).

Nike (NKE): First off, I'm hearing that retailers are placing cautious orders with their vendors ahead of the holiday quarter, and Nike is still impacted by this trend, as far as I am concerned -- so I'll be keeping my eye on that. Second, I want something on Europe that confirms the improving macroeconomic data coming from that continent. Third, how badly was emerging-market demand hit, if at all, from the outflow of money during the summer?

And, Finally, Investor Conferences to Catch

Disney (DIS): I have been bullish on Disney in the past two months. Now that the share-buyback news is out of the way, and in view of the Morgan Stanley downgrade last Friday, I am looking to see if there is any juice left to the story as the stock hovers near $70.

Take-Two Interactive Software (TTWO): The company could very well ramp up its bullishness following the mega sales numbers from its new video game title, "Grand Theft Auto 5."

Aeropostale (ARO): The management team will have its first presentation at an analyst conference following the arrival of an activist shareholder on its doorstep.

Macy's (M): I'm curious as to whether Macy's will continue the downbeat tone it struck on the U.S. consumer in August, when it noted people are buying bigger-ticket items as opposed to apparel. This is known as a "crowding-out effect."

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