Even the preliminary estimates for headline payrolls of 215,000 to 230,000 backup, the claims induced hopium. However, shares of what I often reference as "payrolls predictor stocks", names such as ADP (ADP), Paychex (PAYX), and Cintas (CTAS), have lagged the Dow Jones Industrial Average in the past five sessions. This is despite the low level of claims held in storage and generally reassuring snapshots on employment in various confidence/manufacturing surveys.
This doesn't make me feel warm and fuzzy inside going into the August employment report on an absolute basis (meaning, absent a bunch of dot-connecting, which I will explain). Who I do believe at this particular juncture, Mr. Market or government data compiler lifer?
The answer matters a great deal as the August employment report will sway those voting FOMC members regarding:
- A full scale taper, headlined by $10 billion in bond purchases a month;
- Taper light of $5 billion in bond purchases a month;
- The mixed taper, with mortgages being tapered first;
- No taper, a continued adherence to the Bank of Japan model.
Thanks to government bond-buying, sugar prices are at a five-year high. Could be the reason why Coca-Cola (KO) and Pepsi (PEP) are down 4.79% and 6.90%, respectively in the past month? Or, is it consumer spending weakness related? I am inclined to think it is consumer spending-related as the earnings report from Campbell's (CPB) on Thursday whispered this to me: "we had to promote more quarter over quarter or our numbers would have missed consensus spreadsheets, sad but true bro."The bottom fell out of J.C. Penney (JCP) shares on Thursday evening, hitting my firm's $12.00 price target. Is this move an indication that J.C. Penney is not partaking in the ramp being experienced in the malls prior to back to school? That would be beyond troubling as J.C. Penney is currently giving the store away -- and that includes the online store -- as a means to drive traffic and to squeeze fast cash from merchandise inventories). If so, the stock will be below $10.00 before you can say, "Ron Johnson had a creepy smile." Jeff Gundlach is still not short shares of Chipotle (CMG), but he remains no fan. I talked to the company earlier this month (rating: sell) and could offer this insight: if the stock fails to hold the Aug. 27 intra-day low of $398.00, it's the market beginning to price in a P&L hit in first half 2014 from investments to offer non-GMO menu items. Although I was left with the sense from the call that Chipotle's enhanced marketing initiatives have re-ignited traffic, and tame inflation in key ingredients helps the cost line, transitioning portions of a menu will be costly and unwelcome to a stock priced for perfection. At the time of publication, Sozzi had no positions in any stocks mentioned.
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