For the broader market and key large companies, there will be no excuses worthy enough to paper over dreary news this week.
It's put up, or shut up time.
The stock market enters the new week with a fresh batch of mostly bullish expectations, thanks in part to how the January jobs report was assessed by the Street. These rosy expectations revolve around a single thought -- the U.S. economy is just fine and dandy, so ignore January's lame performance for equities. As for the underlying driver of these rewritten short-term rules, the employment report, here is how to sum things up nicely.
Hourly wages bounced back from a dismal showing in December. Coupled with tame inflation (shout out oil), the consumer is being banked on for facilitating a spring buying rush online and in the malls. Investors are hoping the prospect for such magically appears in this week's January retail sales report that comes on the heels of an oddly disappointing December print.
However, allow me to present a dose of reality. For starters, there is the dreadful earnings report from industry leader Polo Ralph Lauren (RL) due to heightened competitive forces. That suggests any wager on a spring consumer spending orgy would be misguided. Second, the growth in average hourly earnings continues to be lackluster. That should prevent the amount of animal spirits that the market now expects to be unleashed following the jobs report.
Having shared that doom and gloom, I was impressed by the broad strength in housing-related jobs last month. I think that has to be a cue to at least gamble on a housing supplier like Owens Corning (OC) or Sherwin-Williams, (SHW) or home improvement retailer Home Depot (HD) (having had a few exchanges with the company in the past month, I do sense it had a good fourth quarter 2014 and that perhaps the first quarter of 2015 has benefited from demand for housing supplies and cold weather essentials).
Inside Scoop on Earnings
Last Tuesday, I offered this on Buffalo Wild Wings (BWLD) and Chipotle (CMG) ahead of their earnings:
Fourth quarter results from the burrito king are due out later today. Gangbusters quarter forthcoming in light of McDonald's struggles? I think the quarter was strong, but not through the roof as seen in the third quarter due to tough year earlier sales comparisons. The company is also unlikely to signal a menu price increase this year on the heels of implementing one in 2014. So, I'd sit Chipotle shares out into the earnings report, and opt for a DineEquity or Buffalo Wild Wings as short-term holds and wagers on improved discretionary consumption and enhanced menus.
All is well that ends well. I'd rotate out of that Buffalo Wild Wings long and Chipotle short (I assume you listened...) and raise some cash for new opportunities. The first opportunity would be Whole Foods (WFM), a name that I have frequently mentioned positively here since talking at length with Co-CEO Walter Robb in mid-December
If Whole Foods doesn't beat handily, it would be a shocker to me. There were several catalysts in the quarter, which could also appear favorably in the company's guidance. They include:
- New pricing strategies in produce is driving increased traffic and transactions. I expect the company to announce this week an expansion of its revised pricing strategies to interior areas of the store (produce is usually found on the exterior of the store).
- Apple Pay, I believe, is improving store productivity.
- New stores and remodels are positively impacting sales and profit margins.
Another opportunity, albeit a risky one, is to amass a small short position in World Wresting Entertainment (WWE) into earnings. I think the stock unjustly popped on news the company hit 1 million subscribers for the challenged WWE Network; it was done with a costly free trial program. The core of the business continues to be under pressure, namely live attendance counts and ticket pricing.
In addition to WWE, I am cautious on the quarter and guidance for best in class apparel retailer VF Corp (VFC). Although the Timberland boot business was
likely a star performer due to it falling back in favor with teens, and the onset of frigid temperatures, there are a couple areas weighing on my mind. Such as:
- Nike (NKE) and Under Armor (UA) moved more aggressively into the lightweight winter jacket category this past holiday reason, a place where VF Corp's North Face brand has long reigned supreme (think black fleece jackets).
- The U.S. jeans markets continues to be very, very promotional. Conducting this interview with Levi's, and doing the research, led me to this conclusion.
Finally, keep an eye on Under Armour. The company will be having an event this Thursday night to unveil its new Steven Curry sneaker. Curry is the top vote-getter for the NBA All-Star game, and I anticipate this shoe to cause quite the buzz and possible favorable comments from analysts.