Why the Stock Market is Like a Baby

Babies are cute. They mouth a foreign language, have fuzzy hair, and look truly at peace while at sleep. The stock market is nothing of the sort, but does resemble a newborn in one distinct manner: the trigger switch on crying is never too far away from being slammed down. Babies shed tears when crying, stocks go lower in price when a stock market cries. We never really are aware why a baby is crying, and sometimes that holds very true for the stock market. We could invest in a stock as all arrows point to doing so, only to have the stock sent down the drain for no apparent reason. Like babies, stocks are emotional.

Oftentimes we reference “hidden messages” in investing in stocks, and that was on full display on Macy’s yesterday as it posted a great three months of financial performance only to have to have its stock sold by now former investors. Pay attention to this crazy decoding process by our editor Brian Sozzi as it’s something than is able to be applied to other sectors, and should be hung on your fridge as a reference piece on investing.

The Sleeping Baby

Pull up the PDF document from Macy’s yesterday (visit its investor relations page, it’s mad better than the www.sec.gov place) and notice the sleeping baby. All seemed fine…

• Sales increased “significantly.”
• The company had SALES and PROFITS.
• Sales and profits were stronger than Wall Street’s really smart analysts expected.
• CEO said Macy’s is building “momentum”, there is “clear strength” in the business, he is “excited about the future”, and he feels “very good about opportunities in 2012.”
• Online sales (which includes Bloomingdales you fashionistas) rose 33.7% in three months. Wow.
• Macy’s had $1.8 billion in cash at quarter end. Wow.

The Sick, Sleeping Baby

Yeah, that baby may be resting comfortably, but unbeknownst to you he/she caught a flu fug at the family BBQ. His/her fever is approaching 99 degrees, and waking up screaming is all but guaranteed. Basically the same deal at Macy’s yesterday.

Its positive news on its financials arrived at a time in which the stock market is punishing any signs of negativity. Every soft spot in a company’s earnings will be heavily scrutinized. In the case of Macy’s, its sales and earnings outlook was only so-so for the rest of 2012, which the stock market interpreted as the consumer could fall off the cliff after spending strongly in the quarter.

By now, members, you should be fully cognizant of this sound smart tip: a stock price will tend to rise or fall six months in advance of actual news. Creepy stuff, huh! So, as you were shopping at Macy’s in October 2011, the stock market was hard at work sending Macy’s shares higher due to the potential for a strong start to 2012 financial. Take that Al Roker, the stock market actually predicted months before warmer than normal winter/early spring weather that drove more people to the malls and outlets.

To join as a member to the Decoding Wall St. investor education platform, which includes direct access to Chief Equities Analyst and media personality Brian Sozzi for all investing questions, please visit www.decodingwallst.com.