What I’m Watching This Week – 29 October 2012

October Flummox

It was a week that should have resonated differently as it’s reasonable to conclude that it was important for the average investors’ psychology to see GDP data beating estimates.  The expectation was a 1.8% increase, so when U.S. GDP grew 2% in the third-quarter, the clouds should have gone away and the sun should have come out.  That pesky little rumor of burgeoning growth is becoming evident and there is some actual momentum happening.  Consumer spending was the principal factor of the increase, furthered by purchases of durable goods.  Not too shabby it would appear right?  Ahem, for the week, the Dow fell 1.8 percent, the S&P 500 lost 1.5 percent and the NASDAQ dropped 0.6 percent.  D’oh!

The familiar culprit of lack of business investment provided a headwind to stronger growth.  Lighter revenues are a concern this earnings season with just about 37 percent of S&P 500 companies have reported revenues that beat forecasts, compared with the 62 percent that typically exceed expectations, according to Thomson Reuters data.  Sales missed forecasts at 59 percent of companies, the data also showed.  Third-quarter earnings at about 71 percent of the index’s companies beat analysts’ estimates, according to data compiled by Bloomberg.   The data and the overall GDP sentiment have presented a sort of alternative reality where the confused and perplexed reign supreme.   Hurricane Sandy is only going to add a new twist to the narrative, with the potential of market closures into Wednesday, Insurers preparing for the worst in storm damage to property and lives of as much as $4.9 billion, according to Kenetic Analysis Corp.  Home and business owners are bracing for potential economic losses ahead during what may be a challenging storm recovery.  This wasn’t the October Surprise they were expecting, not even close.

I remain optimistic.  This earnings season has been a very challenging one and Investors should look beyond some disappointments and focus on an improving economy.  A growing economy will underpin growth in stocks and all other instruments.  External bearish factors include concern about the European debt crisis after Spanish unemployment rose to a record 25% and after Germany expressed more doubts about whether Greece will be able to meet requirements for its European bailout.  Our own ‘Fiscal Cliff’ is rapidly approaching, not to mention the elections next week.  It’s understandable why confidence is missing; present circumstances present a mixed bag of joy and distress concerning weaker global and domestic economic growth.  I remain optimistic, but cautious and defensive.


What I’m Watching This Week – 22 October 2012

Expectation and interpretation

The U.S. market began the week with better than expected economic data and by the end of the week, earnings results actually had beaten expectations (true, the bar had been lowered) but the revenue beat rate and outlook have been disappointing.  Approximately 20% of the S&P 500 companies have reported thus far, only 42.3% of them have beat Q3 revenue expectations and 57.7% have missed.  However, 64.9% have beat earnings per share (EPS) estimates.   As I’ve mentioned before, this market is all about expectation and interpretation.  To close the week off, the S&P and Dow finished the week with minuscule gains, the Russell 2000 with a small loss, and the NASDAQ proved to be the worst performer with a 1.26% drop.  There is a noticeable change in sentiment, again with little response to good news. Stocks had the worst week in a few months all the while the data has actually been somewhat positive.  On the global perspective things were considerably better, with eleven of twelve major foreign indexes posting gains.  The under performer was Brazil and they missed by .41%.

Overall it was a quiet but positive week for economic data.  Retail sales, industrial production, housing starts and building permits all beat expectations right on up until Thursday’s employment numbers.  First time unemployment claims took the wind right out of the swelling sails and then Friday’s sell off, which just by coincidence happened on the 25th anniversary of the Crash of 1987, capped off a surprisingly vexing week.  Uncertain outcomes remain and the market’s fluid reaction bears caution.

I remain optimistic.  I won’t be making any predictions when the overall earnings story is this mixed, the Doom and Gloom crowd will be providing more than enough downbeat outlook commentary.  Adding to the neurosis of the market, the last Presidential debate happens Monday evening.  I am curious which candidate (the fake Mitt or fake Barack) will play to undecided voters via their foreign policy positions.  The last two events were certainly eyebrow arching to say the least.  My short-term outlook predominately screams for caution and risk control due to market psychology and sentiment.  Mid to long-term, I remain optimistic as there are many immediate opportunities for long-term growth potential; once the equilibrium shifts and the fundamentals are once again recognized by a sane market place.



What I’m Watching This Week – 15 October 2012

Momentary lack of muscular coordination….

It wasn’t just me, last week, who noticed again that even with good economic news, the market and the purveyors of doom and gloom greeted earnings season with little if any enthusiasm. Yes, the rally coming out of 3rd quarter hasn’t been sustained. The markets were tap dancing on 4 year highs and a noticeable pullback was more than anticipated. The U.S. market has performed as expected, mainly consolidating and building a new base. The possibility of a larger pullback remains, and there is enough evidence to warrant a cautious approach as we move deeper into the month. Especially during earnings season, when it’s not the news that holds primary importance, it’s the market’s reaction to that news.

Last week’s losses ranged from just over 2% on the Dow to nearly 3% on the NASDAQ. Internationally, it wasn’t exactly pretty either with nine of the twelve major markets posting losses. There’s significant caution across the globe, the world economy isn’t deteriorating disastrously as some would have you believe, but also the world economies aren’t reacting particularly well either. Europe is fretting over its possibility of double dip recession. The populations in a few European countries aren’t exactly ‘dancing in the street’ in support of austerity. Spain is in need of financial rescue, Cypress needs a bailout and Greece is pleading for a new debt program. In a counter signal to Europe, the Chinese economy is showing tiny signs of improvement; Chinese export and inflation data for September came in better than expected, with exports jumping 9.9% on year to a record $186.4B. The infrastructure projects that have been proceeding are assisting the steel sector and prices for Iron Ore are up from multi-year lows.

I remain optimistic. This week brings Retail sales reports Monday morning, and per my calculations, should be nicely surprising. A second round of the Presidential debates arrives on Tuesday. Building permits and housing numbers on Wednesday (which I also expect to be better than expected). And then the Initial Jobless claim numbers on Thursday, spiced with a little extra intrigue after last week’s silliness. A little positive coordination and the markets could spring back towards the upside. A little more positive global coordination and we could see a very bullish posture continue for the next several weeks. It’s a very close call and much depends on psychology and sentiment. I’m feeling quite agile right now, while I look to the week with a cautious eye and expect many to present a downbeat outlook; I see opportunity to seize the day even when the overall earnings story is mixed. I remain optimistic.

And now the list, as of close of market 12 October 2012.

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What I’m Watching this Week – 8 October 2012

Fear can’t kill you, but it sure as hell will make you sweat profusely

The “October Effect” is the theory that stocks tend to decline during the month of October.  Historically, October hasn’t produced the most confidence building events on record to be honest (the crash of 1987 occurred on the 19th which saw the Dow plummet 22.6% in one day is in recent memory as is October of 2008 where the S&P 500 was down by more than 27% at one point in the month).  I don’t buy into the theory as the statistics produce a different reality.  However a recent survey shows that a majority of individual investors were unable to correctly identify the fact that the S&P 500 index has risen in the last 3 years (2009, 2010 and 2011).  The barrage of confusing and outright false headlines, often with a political motivation, has sent some ordinary Mom and Pop investors fleeing, waiting to see the election result, what happens in Europe, whether there is a recession, and what happens with the fiscal cliff.  They are traumatized and that disaffection is widespread.  Many are just simply unwilling to commit, out of pure fear.

Others, not paralyzed by emotion or the bloviating of the “talking head political pundit’; haven’t let the rhetoric distract them from their analysis of data.  They didn’t sell in May – In fact they bought, and it wasn’t bond or money market funds it was equities.  The callous influence of politics gave these investors’ confidence. Why?  Because their understanding of the data accurately reflected what we fundamentally see:  modest growth – far less than what is needed for a healthy recovery but certainly not a recession. They were rewarded again by last week’s ISM manufacturing index registering in expansion territory at 51.5, that’s baseline but solid growth.  The employment situation is consistent and its ongoing improvement is respectable.  The payroll job increase was within expectations and the upward revisions to the prior months obviously proved to contribute a significant benefit.  The hourly wage moved higher. Household employment gains revealed a swell in part-time employment, about 2/3 of the newly employed. This is better than unemployment, but less than ideal.  And lest we forget, the controversial decline in unemployment.  Jack Welsh and the other conspiracy believers, be damned, I doubt a department full of career bureaucrats (republican and democrat) would destroy their careers to provide political cover to this President or any other President.  Didn’t Nixon try something like that?  I don’t recall that as working out so well.  Allowing a political opinion to influence the interpretation of data and its judgment is indicative of a culture of pathetic panic.  Facts are pesky little things you know.

I remain optimistic.  How much risk am I or should anyone else be willing to take at this point in time?  The correct answer is different for everyone and currently a large number have decided to watch from the sidelines.  “Markets can remain illogical far longer than you or I can remain solvent” are words from John Maynard Keynes and words to follow.  And when they do regain some logic and the markets rally, many are afraid that they have arrived too late to participate.  Dennis Gartman states “In trading/Investing, an understanding of mass psychology is often more important than an understanding of economics.   The news has been encouraging, if you care to look beyond the noisemakers.  I remain optimistic, cautiously attentive.

And now the list, as of close of market 5 October 2012.
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What I’m Watching This Week – 1 October 2012

Everything is debatable

Its 4th quarter and it’s been an incredibly interesting year hasn’t it?  The world should be transfixed with fear, doom and gloom as some commentators continue to be shout out at full volume.  The U.S. and Asian economies are like the dinosaurs of ancient.  Stuck in the tar pits, no quick escape, the more you fight the deeper into the muck you sink and a complete rescue from the situation is becoming more difficult to rationalize.  The U.S., in particular, behaving like Thelma and Louise, moving at top speed towards a financial cliff, fully cognitive of the effect of what a failure to compromise will bring but indignant to the reality of having to do so.   In Europe, they are chest deep in yak droppings.  (That’s about the prettiest way I can verse it, actually).   Social unrest is slowly beginning to bubble to the surface, a possible financial catastrophe remains on the horizon for Greece, Italy and Spain.  Yikes.

Remarkable as it is significant, with all the risk present, the U.S. stock market is up double digits for the year and hovering near post crisis highs.  Housing prices are moving higher.  Growth, albeit weak, has resumed with assistance from the expansionary Fed policy of Quantitative Easing.  Consumer confidence has spiked higher and the jobs picture is actually a little better than we are giving it credit.  The Bureau of Labor Statistics (BLS) announced a preliminary benchmark revision for payroll employment.  Net job creation was actually about 350K better than previously reported and private job creation was 400K better for the twelve months ending in March, 2012.    All isn’t beautiful however, as business confidence is still lacking.  Some businesses are ultra conservative right now, waiting until after the election to commit to expansion or new hiring.  Corporate earnings forecasts have moved lower.  This is the basis of the weakness in the manufacturing sectors.

I remain optimistic.  This week if we get good data, the market will rally.  If Spain gets closer to a bailout, the market will rally.  Tuesday we get the Auto Sales reports, Wednesday is ADP employment changes data and non-manufacturing PMI numbers.  Thursday we get initial unemployment claims and continuing claims.   Friday the Non-Farm Payrolls numbers arrive, President Obama will know what that number is on Wednesday – candidate Romney will not.  (I’ll be paying close attention to the President’s body language on Wednesday evening- it will be an indication on his confidence or lack thereof).   Oh by the way, we have the beginnings of 3rd Quarter earnings season.  That’s just this week.  There is a good deal of upside for the U.S. economy, regardless who wins the election.  How that upside will be acknowledged and utilized is the phantom issue.  Some policies of the past and some of the present have proven to be failures, other have been successes.  It is reasonable to expect that we could see further gains in stock prices regardless of underlying economic conditions.  It is also prudent to protect against the very real risk to the downside.  I remain optimistic, defensive and alert.