Stocks are down for the third straight day on news that yields on Spanish 10-year bonds is once again over 7%, disturbing news suggesting China is experiencing deflation, and the start of what is widely expected to be a miserable earnings season for U.S. stocks. The general citizenry looking to kill their July 4th buzz can look almost anywhere to find broad negativity. What investors need to do now is concentrate on what matters to their portfolio.
"We need to change the narrative," as Nesto so aptly puts it in the attached video. There's no sense waiting for someone to change the story for us when we can do it better ourselves. Let's start with this: China, Europe, Alcoa (AA) and bank stocks (XLF) may matter to your portfolio, but they aren't necessarily worth your attention.
The Far East and west are horrible and can be assumed to get worse before they get better. That's all most investors need to know. China and Europe are bad. If you're making specific trades off those chronic headaches you're going up against people who are actually on the front lines of the issues. Hiding in a bomb shelter since Europe started going south has spared you from pain in the financial sector and huge gains elsewhere.
Closer to home, Alcoa is at the head of the earnings parade tonight. The official estimate for the company's Q2 EPS is 5-cents. There isn't a compelling reason why you should care about that expectation. Alcoa is notorious for missing estimates. Even when they beat, as they did in April, the stock doesn't go anywhere for very long. Alcoa isn't a very well-run company and operates in a simply brutal industry. They can have my sympathy but not my investment money.
As for bank stocks, the sector is a nice trading play but little else. When JP Morgan (JPM) reports this Friday morning it will be amazing theater as CEO Jamie Dimon unveils the latest best guess as to how much money the company's "bad trade" lost. That's about all it will be. Financial companies can report more or less whatever they want quarter to quarter and are hopelessly exposed to regulatory changes and unknowables like the Libor controversy. There is no trading edge there for the vast majority.
What Matters? Consumer names. Hershey (HSY), Anheuser-Busch InBev (BUD) and the Consumer Stapes ETF (XLP) are at all time highs. The Consumer Discretionary ETF (XLY) is crushing the S&P 500 year-to-date and over 1, 2, 5 or 10-year periods. These are some of most widely shorted names and groups in the market and they are simply destroying the shorts.
Hershey reports earnings on July 24th. When they do we'll have insight from a demonstrably well-run company that buys commodities in size, manufactures around the world, and sells to the consumer. Hershey is one-stop shopping for information gluttons.
Bud reports July 31st and the retailers start reporting in August. Those companies matter. Alcoa and the banks are just something to talk about between now and then.
- Investment & Company Information