Breathe, and Reassess

 | Oct 31, 2012 | 10:09 AM EDT  | Comments
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First, allow me to send well wishes to anyone along the East Coast who was impacted by Hurricane Sandy. I, for one, rode out the storm on Strong Island, where I came to the realization -- as trees were falling all around -- that there may be more to life than stocks.

Turning to the market, I want to share what we should be, the intense investor, on the reopen:

● An array of frantic action on storm-based trades (you should know every relevant name, as the market has been closed for two days -- but the information has flowed).

● Nervousness regarding the market's mood, as it has been unable to price in Sandy and the earnings results from dopey companies that reported Tuesday (U.S. Steel (X), you have got to be kidding me).

● Optimism that maybe the market will forget the dreadful earnings season as it has not garnered widespread attention since last Thursday. The market is looking for any reason to start to turn the corner from incrementally worse earnings to the election and from the election to fiscal certainty.

● A dizzying amount of macro strategist and sell-side notes incorporating Sandy-related model revisions.

As evidenced by these takes, there will be a ton of emotion in the marketplace and, frankly, I want no part of the lunacy. Without the guiding hand of Mr. Market amid an earnings season I feel lonely, so I am opting to stay bearish, given what earnings have brought us so far. While staying true to that view, and not making irrational decisions, I plan to study the market's pricing mechanism back at work and begin to plant seeds for November.

Notice that the checklist below is quite Sandy-weighted for now. The election is too close to call for us to enter the mix with specific outcome plays off of recent broad-market weakness.

The Day After the Day After Investor Checklist

● Don't be so quick to think that flooded stores immediately means damaged clothing inventory. Those positioned near low-lying areas utilize expandable racks to keep merchandise off the ground. Still, this is a potential basic apparel buying bonanza and for that reason -- think socks get ruined from water, or undershirts that have been ripped to tie things together. As a result, a name such as HanesBrands (HBI) is worthy of research.

● Remember the underground economy, or the boost to temporary jobs that pay in cash -- think tree removal, water removal, general cleanup for the elderly. Cash in hand for these low-to-middle-income households could somewhat offset unplanned for Sandy both pre- and post-expenditure. It's no matter, though, because it's tough to get long dollar stores on their justified pullbacks and as Sandy hurts low-income consumers. Watch the International Council of Shopping Centers weekly data in early November for a pronounced "paycheck cycle."

● November's ADP employment report could snag a boost within its 1-50 employee jobs component, or temporary employment. Obviously this would also show up in the nonfarm report, but with some offsetting factors for the market to digest, such as wage and average workweek pressures from store/business closures. Note that Sandy was a great opportunity for small business owners to establish a base of future business by being there for people with advice and items out of stock at the larger, established companies.

● Start thinking about November's regional manufacturing reports as companies boost production to supply bare shelves/help in the relief efforts. You want to look at domestic food plays, particularly from a name such as Kellogg (K). The reason this is intriguing is that new orders for companies have been weak and, as a result, that excess capacity has hurt profit margins -- blame slack European demand. With unexpected demand, that dynamic should temporarily subside for some selling products that are in favor pre- and post-Sandy.

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