Beware the bear: Sector leaders can't hold gains, retail looks light

Is there a stealth bear market underway?

While the major indexes rallied on Monday, most people failed to notice the poor close. Financials, which were leading, gave back half their gains. Home builders, another market leader, closed in negative territory. Transports also gave back most of their gains.

Elsewhere

1) Macy's beat on earnings, was a bit light on revenues. Comparable store sales were a disappointing 1.4 percent. So how much of a factor was the weather?

"At one point or another during January, 244 Macy's and Bloomingdale's stores were closed because of weather, and the business remained sluggish until Valentine's Day," CEO Terry Lundgren said. The company operates roughly 840 stores, so we are talking about 30 percent of the stores out of commission at some point during the month.

But here's the key: the company reiterated its guidance from January 8th of this year. They expect comparable store growth of 2.5 to 3 percent, with earnings of $4.40-$4.50. "Once warm spring weather arrives and our full assortment of fresh spring merchandise is in place, we believe customers will return to a more normalized pattern of shopping," Lundgren said.

2) It was worse at Perry Ellis, which cut its outlook for the fourth quarter 2013 and for full year 2014. As ever, bad weather was the culprit, driving down same store sales by 4.8 percent. Perry Ellis has two channels: direct to consumer and wholesale.

Lower mall traffic caused their direct to store sales to drop 4.8 percent year over year. On the wholesale side, replenishment orders "was essentially turned off for many retailers in their effort to manage overall store inventory."

It's pretty simple: retailers have been heavily promotional for so long that the promotions have hurt margins. Those that are not offering steep discounts often lose market share to competitors.

3) Home Depot beat on bottom line, but topline was light. The current year's guidance of $4.38 is a bit below consensus estimates of $4.43, while revenue estimates of $82.59 billion is just below the consensus of $82.91 billion. More importantly, they raised the dividend by 21 percent to $0.47 a share, that's a yield of closed to 2.4 percent.

Look, it was a very impressive year for the company. Fourth quarter comparable store sales were up 4.4 percent, and 4.9 percent for U.S. stores. The background story—home improvement—remains positive for 2014. Management has talked about 4 to 5 percent revenue growth, even if they don't gain market share.

4) Home builder Toll Brothers beat expectations. Here's what they said about the spring season: "While it is still too early to draw conclusions about the Spring selling season, we remain optimistic based on solid affordability, attractive interest rates, growing pent-up demand and an industry still under-producing compared to both historical norms and current demographics."

Yet here's what important from chairman Robert Toll: "Although the weather will result in some delays and some additional, but not major costs, it should not result in lost sales or deliveries."

5) Mainland China stocks down another two percent overnight with yuan weakness, property market issues were both a factor. China is now down about five percent in the last three days.

6) New Italian Prime Minister Matteo Renzi won a confidence vote (though not by a large margin). Let's hope he succeeds: at 39, he is the country's youngest prime minister. Meanwhile, his agenda is full of the kind of changes Italy desperately needs: reductions in income and labor taxes, an overhaul of the legal system, and most importantly, an overhaul of the electoral system to favor bigger parties and allow more to get done.