The Day Ahead: A Slowly Decaying Market
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In trying to find an object to which I could compare the market, I figured there was nothing better than a slowly decaying corpse: That is, it's still presentable on the outside, but it's disappearing on the inside. As the market enters the week, it's obviously still in the land of green on the year, though it's arrived into the fourth quarter with a whimper. Markets peaked Sept. 14, and suddenly the sky was falling. I wrestled with whether I should go bullish again amid the pullback, but the decision came more quickly than I thought. It's quite dicey to load up on risk after a two-week slow bleed-out, given that the next five days are potentially littered with headline and fundamental death traps that aren't priced into valuations.
Executive Analysis"The global economy was weaker than we'd expected." This is the classic table setting for the full-year earnings warning. As that sweet nothing rolls from their tongues, this is where my head will be.
- "Global economy" does not mean only the U.S., Europe and China. It also includes emerging markets such as India and Brazil -- and, in India, April-to-June growth in India came in at 5.5%, the worst performance in a decade. Meanwhile, Brazil's central bank recently reduced its 2012 growth estimate by a full percentage point.
- How the "global economic weakness" impacts higher-margin business segments will be vital in offsetting softer growth in more established, less profitable businesses.
- "Inventory destocking" is one phrase that has often sent chills down my spine. It's a phenomenon that signals customer hesitancy is unlikely to abate in a single quarter, and it usually says reordering is not as robust as the market has been pricing into the company's valuation.
- I'm on a constant hunt for "hype words" designed to deflect attention from the earnings warning and limp operating performance. Examples include: "outstanding," "stellar," "record," "best ever" and "robust."