I Hate To Interrupt Today's Rally, But ...

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Includes: CMG, F, JPM, LULU, NKE, UA
by: Bret Jensen

I hate to be a skeptic during a this much welcomed Friday rally but despite the hoopla from the latest "agreement" in Europe, there are still a lot of negative undercurrents to the market. I am using the rally to lighten up on some recent longs as I think this rally will fade by next week.

Troubling signs today missed by investors in "rally" mode:

  • Love that the euphoria about Europe is popping up my longs today, especially my selections in the Materials and Energy sectors. However, a lot of details need to worked out between the 17 countries that share the euro and I am afraid this may be another short-lived rally as investors realize that a lot more to be done.
  • Despite huge rally on latest news from Europe, economy is still slowing down domestically. Ignored in upturn today, Chicago PMI comes in at 52.9 less than 53.1 expected. New orders are at lowest level since September 2009.
  • It was quite the surprise decision from the Supreme Court and the legitimacy of Affordable Care Act ("Obamacare") yesterday. We did finally get some honesty about the mandate, which really was a "tax" all along despite the administration's insistence in the public that is was something else (It did argue before the court that it really was a tax). I think the one impact that the pundits are not discussing enough is the likely impact on small business hiring. Any hope of a post ruling boomlet for hiring on clarification of the law probably just went poof, especially for firms over 50 employees. Overall I think this ruling is a negative for the markets, job growth and the economy for the rest of the year.
  • There were a lot of articles yesterday on the likely impact to various subsectors of the healthcare industry. However, the decision is likely to have a lot of unintended consequences. One thing I noticed was that a lot of high beta/high PE retailers and restaurants like LuluLemon (NASDAQ:LULU), Under Armour (NYSE:UA) and Chipotle Mexican Grill (NYSE:CMG) were crushed yesterday as investors started to assess the likely additional costs the firms would have to pick up as a result of the new health care law. CMG and LULU also are underperforming in this huge rally today. Something to keep an eye on.
  • Ford (NYSE:F) becomes the latest multinational to be hit by the problems in Europe. The stock is getting hit hard on a profit warning due to their problems with declining sales on the continent. I think this will be common theme over the next few months which should lower overall S&P profits.
  • Nike (NYSE:NKE) also getting hit hard today about slowing Chinese revenue growth.
  • China is still slowing and industrial profits came in down over 5% Y/Y.
  • Not a big fan that JP Morgan (NYSE:JPM) is actually down for the day. More bad news to come around its trading losses?
  • Yields on the Spanish 10 year debt have fallen but still stand above 6.6%, not that far from the "danger" level of 7%.

Disclosure: I am short CMG, LULU. I am also long JPM