Remember that really popular group of kids back in high school? You often went home and tried to devise a strategy to become as cool as the guy driving the new Camaro or the girl toting the limited-edition handbag. "If only I could act like them and do what they do, maybe I wouldn't be sitting home on a Friday night," you dreamed.
Oddly, this same "Do as I do" mantra could be applied to the market -- with a slight twist, of course: "See as I see." In this type of excessive volatility, in order to avert pain in the core or trading portions of one's portfolio, see what the market is seeing around every which angle -- not just all things eurozone. (Of course, I wonder if this is volatility, given that stocks are basically heading lower each session).
Accept that the worst possible outcome from Greece is currently being factored into asset classes from oil to stocks to U.S. Treasuries. In this way, you'll experience less of a shock as a higher market at the opening bell bends to the undercurrent of selling pressure by the time the gavel gets slammed down, as was the case Tuesday.
See as the Market Sees
In the cool club that is ruled by "Mr. Market" -- which has a nasty spell, as he's been showing in May -- all positive attributes to global data will be pushed aside.
For instance:
● Upside surprises in German gross domestic product: There's no chance of sustainability, regardless of whether Greece exits the eurozone. If there's no exit, the contagion will have spread; if there is an exit, who knows what the impact will be?
● U.S. retail sales generally in-line to consensus: A summer spending slowdown, brought on by tepid wage income growth, is the last thing we need -- overweighting U.S. equities has been the go-to call. According to a study by Bespoke, since the April 2 peak, stocks of companies with the largest percentage of international revenues have underperformed those that generate most of their business in the U.S. by almost 3x.
● Homebuilder confidence index tempers concern that the prior month's "pause" was something more telling, and homebuilder stocks zoom on the session: Confidence was only slightly higher in the South and down in the West (Home Depot (HD) noted same-store sales in the West lagged the U.S. average of 6.1% in the first quarter).
● Benign consumer price inflation makes it easier -- politically, too -- for the Federal Reserve to justify additional quantitative easing, with Operation Twist poised to sunset in June. This reinforces the chairman's recent comments and rendering the Federal Open Market committee minutes today a non-event, unlike the prior minutes that have rattled the markets: Didn't business school teach us that corporate pricing power is a quality that fosters sustainable future earnings growth? If one cuts costs, one can only lean on productivity gains for so long.
● Empire State manufacturing bounces from a poor April showing -- perhaps the Institute for Supply Management manufacturing report won't be sheer Europe-induced dread: Expectations on new orders and employment didn't light it up by any means.
The message, in neon writing on the school wall, is that the point of maximum selling -- otherwise known as capitulation -- has not formed. Are there a couple of interesting sights here and there? Sure. Dick's Sporting Goods (DKS) and TJX Cos. (TJX) had impressive sales and margin quarters, outlooks jumped off the page as conservative, and their shares were bought.
But that has definitely not been the case for most companies during the first-quarter reporting period, especially in the early harvest of retail releases. There was life in a transport, JB Hunt, (JBHT), and FedEx (FDX) is quietly outperforming UPS (UPS). Utilities retrenched a bit -- though they were still relative outperformers.
However, I am reaching for straws here, friends, because the overarching action didn't give us an all-clear signal. There was a flight into consumer-staple names General Mills (GIS), Kellogg (K) (horrible earnings story here), Kimberly-Clark (KMB), and Pepsi (PEP), all yielding more than 3%. Energy was hosed, and I believe this sector has to reach into the green to hint the overall market is at a near-term oversold condition. Furthermore, steel stocks were battered, highlighting a point I made last week that cheap valuations could become cheaper in this market.
Digest this data from Bespoke as support for this last comment:
The 50 S&P 500 stocks with the lowest price-to-earnings multiple are down roughly 11.36% since the market peaked on April 2. In the market's eyes, "attractive valuations" remain unattractive.
