The final dagger in the heart, you ask? It's the untrustworthy data from China. These figures include a key manufacturing reading that was at its lowest level since November, weak new yuan loan growth and dreary industrial profits. Should you want to set aside a spare second to ponder the third quarter, be sure to keep the following in mind. If a company you own performed increasingly worse in China in the second quarter vs. how it did in the first quarter, the intra-quarter reads in the current period suggest another weak performance that may be a risk to the stock in an ebullient broad market. I continue to believe that many stocks across sectors still value China as a supreme growth engine rather than a growth engine that is in bad need of a tune-up. That is a problem -- and a risk.
Universe No. 2: U.S. Consumer
On Tuesday, I laid eyes on my first sell-side note that attempted to minimize the impact of food and gas inflation on the consumer. Hey, I understand how it works. We can't have the macroeconomic guy sound overly negative if the strategist team is suggesting investors cowboy up and buy cyclical stocks. I expect more of these types of notes. However, I caution you to drill beneath the sweep-under-rug attempt and recognize that next to no inflation risk has been priced into those companies that are heavily exposed -- i.e., many of the cyclicals everyone loves. For instance -- first off, restaurant stocks are hanging tough on the notion that the consumer figures to positively surprise on spending instead of pulling in the reins due to menu prices that were enacted to protect, not expand, profit margins. Second, department store stocks Macy's ( M), Nordstrom ( JWN), and Saks ( SKS) have disconnected from any semblance of inflation reality. Keep in mind that the dynamic could change. Look no further than the "unexpected" softness in the latest consumer confidence and the rise in inflation expectations. Even if the Fed draws the quantitative-easing card from its deck, the two universes I just outlined are likely to exist in the intermediate term. I don't want to sound comparable to an 85-year-old money man mailing it in, but the attention should be reserved for those companies with the strong probability to raise dividend payouts to compensate for what could be a volatile stock price as risks come home to roost. Now go forth and be the boss.