Decoding the Wall Street Journal: Top Must Decode Events from Around The Wall Street Journal

Top Must Decode Events from Around The Wall Street Journal

Front Page:“Economic Fears Weigh on Stocks”

Tales of “flat” stocks, “opaque clouds” (aren’t all clouds translucent?), and “pauses after gains” were told in this dramatic front page eye-catcher.  Weird, though, that the message ended up being seriously simple; stocks as measured by the values of the S&P 500 and Dow (sound smart: “DJIA”) finished the day lower.  Due to that loss in value (sound trader smart: a “pullback”; sound supremely smart: traders usually like buying stocks on pullbacks), the two major indices snapped five days out of six where Charlie Sheen like winning outnumbered Wile E. Coyote type losing.  The other major indices’ performance, the NAZ-DACK, luckily escaped the pullback and advanced for the sixth straight session (sound smart: only five trading sessions a week for stocks, bonds, currencies, commodities, etc.).

Decodable Moments

• “Industrial output”: The amount of goods a factory churns out, a function of customer orders.
• “Priced in”: A market of any kind has braced itself for a good or bad outcome by connecting economic clues beforehand.
• “Stoxx Europe 600”: We know you just smile and nod when seeing this in the paper!  Let it be known once and for all that the index comprises 60 companies, large cap to small cap, based primarily in 18 European countries.
• “CAC-40”: Another smile and nod moment.  Biggest of the big 100 companies in terms of value on the “Paris Bourse.”  Bourse is a sexier way of saying index or exchange.

Money & Investing:“Retail Sales Unlikely to Tell the True Story”

We as human beings are usually able to identify with any article related to retail.  After all, we buy soup, spiffy clothes, underwear, and bread on a daily basis, or at least a couple times a year.  Doing these things makes us consumers and integral players in the global economy (sound book smart: more goods we buy here at home, the more that is ordered domestically and abroad, which is like sprinkling Miracle Gro on a veggie plant).  But, we don’t think you are reading this newsletter having not been fully aware of the definition of a consumer.  On the contrary, the author in the WSJ piece has the nerve to take your warm, fuzzy feeling for shopping for granted.  How so?

In roughly 10 decodable moments in this two page article (read from the trusty iPad), you are expected to know that something called a retail sales report will be released by the government today, it may or may not show that U.S. consumers are in the malls, and in the end the stock market as a whole could spike up or down depending on the interpretation of the numbers by traders and investors.  So let us lend a hand on a couple of fronts.  First, we apply our basic decoding skills by looking at decodable moments.  Second, we take our newfound knowledge and decode the future, or make up our own headlines as to what could happen to stocks.

Decodable Moments

• “One moment consumer credit is jumping”: Technically that is not the case.  Once a month a “consumer credit report” is released by a government agency.  In it, details are provided on whether consumers are incurring credit card, student loan, and auto debt (sound smart: credit card debt is called “revolving credit”).
• “Raising earnings targets”: Wall Street analysts try to predict the future by creating earnings estimates for companies.  Snoozeville.
• “Pull in their horns”: Analysts lower their earnings per share estimates.
• “Pull a pedal and get another story”: CLASSIC money manager quote that borderline makes no sense.  If you pull a pedal from a flower, it’s still the same flower minus a pedal.
• Who “anticipates” economic reports?”: Investors, analysts, economists, and traders.
• “Ex.” automobile sales: The flashy retail sales number (sound television news smart: “headline”) excluding sales of autos, which tend to vary wildly month to month.
• Sound economic smart: “Real terms” is looking at a financial data point excluding the inflation rate.  Supposedly gives a clearer picture.
• “Jobless claims”: The number of jobless people claiming unemployment checks in a given week.
• “Geopolitical upheaval”: The political rowdiness in a specific geography.
• Consumer “noise”: Not a physical noise made by consumers!  Anytime you hear the word “noise” in the financial ecosystem it references that high powered people are not sure of anything.

Decoding the Future: Making Our Own Headlines

The retail sales report is always issued at 8:30 am.  Be ready with decoding questions while reviewing the numbers, and present your own decodable moments on the Decoding the Wall Street Journal Facebook page.  We expect the report will be Goldilocks esque, not too hot not too cold.  Sales were good for the holiday season.  But, we think strong sales are irrelevant as profit margins of retailers are under siege from abnormal levels of discounting.  So the setup in terms of trading the news skews towards unfavorable (as in, be mindful of one of those pullbacks we mentioned earlier).  A strong report, it’s likely nobody will care because all eyes are on weak retailer profitability.  A so-so report only amplifies the profit margin problem (less revenue, less expenses are covered).  We would hold your horses from diving into retail stocks.