Stock Market Pulse

January 26th, 2009

Weekly review of the markets

Last week, although we had a positive candle on last Thursday the negative trend still prevailed...

Monday, the markets were closed because of Martin Luther King's day

Tuesday, it was the inauguration day for president Barack Obama so no economic news were in store. The big news on the day came from Citigroup whom announced they were selling their Japanese division whole reducing their quaterly dividend from 16c (O.16) to a single penny (0.01)per share... The whole financial sector suffered through out the day and brought the whole market with them which cancelled the positive effect the bullish candle from last Thursday could have had.

Wednesday, considering the debacle from the day before it was to be expected: the market opened higher when a lot of short covers occurred (people owning short positions were taking their profits). Once again no economic news were in store. IBM's results came out higher then expected (!) and this caused an impressive rally considering the lack of good news lately... It proves the markets are very nervous (volatile)

Thursday Microsoft and Nokia weren't able to follow IBM's lead and posted disappointing results. Intel announced job cuts and Apple, althought reporting better then expected results, announced a less than stellar forecast for the upcoming quarterS. In lights of those bad corporate reports the market opened lower and even if, for no apparent reason, the market rallied mid-day, it closed lower then the day before.

Friday for a second day in a row, the market opened lower. Rumors went that GE was about to announce a dividend reduction, bad results from Xerox, Harley Davidson and Micro Devices were on the way which probably explains the negative open. Once again, around the low of the week, another unexplained rally took place but at least this time it held its ground and we managed to finish on a positive note

This week was a very volatile week which in the end turns out to be a negative week overall.

This Week

Last week was very volatile and doesn't really bring new information to the table which could help us predict what's going to happen this week. no important economic news were announced all week and the whole week's movement was contained within the first trading day range...

This week we have a plethora of economic and corporate news in store so if last week is any indication, we'll need to wear a helmet and goggles because it's going to be one heckuva ride! As if that wasn't enough, the FOMC will announce its next move about the interest rate. That alone usually brings the volatility index higher... Since the rate is already between 0 and 0.25, we can't expect them to reduce it further so what is said will be important so listen closely to their interpretation of where the economy is going in their opinion and what they plan to do about it and especially how far they are willing to go... We already know $1500B of funds are available in a record deficit environment. It will be very interesting to hear what they have to say!

Technically, not much to say except that the trend remains negative. Although last week's volatility was contained within a single candle (Monday's) the fact remains that the week ended in negative territory anyways. The only positive aspect of this mess is that the Volatility index (VIX) is returning slowly but surely toward normal levels. We aren't there yet but this doesn't mean we need to go lower; last November's low seems to be holding strong but we don't seem to be quite ready for a sustained reversal of this infernal downtrend.

Have a look at the VIX graph:

VIX

*if you want more information on technical indicators and Technical analysis in general I strongly recommend you click here

Economic Calendar Data Source: Bloomberg http://www.bloomberg.com/markets/ecalendar/index.html

(Reports I consider will impact the market the most with definitions and expectations)

(Soon to be a section for Investor Rules members only ) Not a member yet? Just go to

http://www.InvestorRules.com/membership.html

Monday January 26th

Existing Home Sales
10:00 ET
Consensus 4.4M

Market Consensus Before Announcement
Existing home sales toppled by another 8.6 percent month-to-month in November to a 4.490 million annual rate. The year-on-year rate, which had been improving, sank back into double-digit decline at minus 10.6 percent. The big issue, of course, is inventory. Supply on the market jumped more than one full month in November to 11.2 months. Not surprisingly, prices dropped another 2.8 percent for a year-on-year decline of 13.2 percent.

Existing home sales Consensus Forecast for December 08: 4.40 million-unit rate
Range: 4.20 to 4.60 million-unit rate

Existing home sales reached a peak in mid-2005 and have been easing since. Typically, a distinct reverse relationship exists between home sales and mortgage rates. However, sales and mortgage rates both have firmed in recent months.

Data Source: Haver Analytics

2009 Release Schedule

Released On:

Released For:

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Definition
Existing home sales tally the number of previously constructed homes, condominium and co-ops in which a sale closed during the month. Existing homes (also known as home resales) account for a larger share of the market than new homes and indicate housing market trends. (National Association of Realtors)

Why Do Investors Care?
This provides a gauge of not only the demand for housing, but the economic momentum. People have to be feeling pretty comfortable and confident in their own financial position to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as home resales, investors can gain specific investment ideas as well as broad guidance for managing a portfolio.
Even though home resales don't always create new output, once the home is sold, it generates revenues for the realtor. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items home buyers might purchase. The economic "ripple effect" can be substantial especially when you think a hundred thousand new households around the country are doing this every month.

Since the economic backdrop is the most pervasive influence on financial markets, home resales have a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the existing home sales data carry valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies.

Leading Indicators
10:00 ET
Consensus -0.3%

Market Consensus Before Announcement

The Conference Board's index of leading indicators fell 0.4 percent in November, following a 0.9 percent drop the month before. The latest decrease was led by declines in building permits, stock prices, and a rise in unemployment claims. The index of coincident indicators, resumed its downward trend with a 0.3 percent decline after a 0.3 percent technical rebound in October. Industrial production had boosted this index in October on a rebound in activity in areas hit by hurricanes. But overall, the report pointed to a deeper recession with no sign of recovery yet in sight.

Leading indicators Consensus Forecast for December 08: -0.3 percent
Range: -0.7 to +0.6 percent

Definition
A composite index of ten economic indicators that should lead overall economic activity. This indicator was initially compiled by the Commerce Department but is now compiled and produced by The Conference Board. It has been revised many times in the past 30 years - particularly when it has not done a good job of predicting turning points.

Why Do Investors Care?
Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the index of leading indicators, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly-and causing potential inflationary pressures.

The index of leading indicators is designed to predict turning points in the economy -- such as recessions and recoveries. More specifically, it was designed to lead the index of coincident indicators, also now published by The Conference Board. Investors like to see composite indexes because they tell an easy story, although they are not always as useful as they promise.

The majority of the components of the leading indicators have been reported earlier in the month so that the composite index doesn't necessarily reveal new information about the economy. Bond investors tend to be less interested in this index than equity investors. Also, the non-financial media tends to give this index more press than it deserves.

Tuesday January 27th

FOMC Meeting begins

Definition
The Federal Open Market Committee consists of the seven Governors of the Federal Reserve Board and five Federal Reserve Bank presidents. The FOMC meets eight times a year in order to determine the near-term direction of monetary policy. Changes in monetary policy are now announced immediately after FOMC meetings.

Why Investor's Care
The Fed determines interest rate policy at FOMC meetings. These occur roughly every six weeks and are the single most influential event for the markets. For weeks in advance, market participants speculate about the possibility of an interest rate change at these meetings. If the outcome is different from expectations, the impact on the markets can be dramatic and far-reaching.

The interest rate set by the Fed, the federal funds rate, serves as a benchmark for all other rates. A change in the fed funds rate, the lending rate banks charge each other for the use of overnight funds, translates directly through to all other interest rates from Treasury bonds to mortgage loans. It also changes the dynamics of competition for investor dollars: when bonds yield 10 percent, they will attract more money away from stocks then when they only yield 5 percent.

The level of interest rates affects the economy. Higher interest rates tend to slow economic activity; lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, few homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the stock market, while lower interest rates are bullish.

ICSC-Goldman Store Sales

7:45ET

Definition
This weekly measure of comparable store sales at major retail chains, published by the International Council of Shopping Centers, is related to the general merchandise portion of retail sales. It accounts for roughly 10 percent of total retail sales.

Why Do Investors Care?
Consumer spending accounts for more than two-thirds of the economy, so if you know what consumers are up to, you'll have a pretty good handle on where the economy is headed. Needless to say, that's a big advantage for investors.

The pattern in consumer spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth. This balance was achieved through much of the nineties. For this reason alone, investors in the stock and bond markets enjoyed huge gains during the bull market of the 1990s. Retail sales growth did slow down in tandem with the equity market in 2000 and 2001, but then rebounded at a healthy pace between 2003 and 2005.

The ICSC-Goldman index is one of the most timely indicators of consumer spending, since it is reported every week. It gets extra attention around the holiday season when retailers make most of their profits. It is also a useful indicator when special factors can cause economic activity to momentarily slide. For instance, it was widely watched in the aftermath of Hurricanes Katrina and Rita which hit New Orleans and the Gulf Coast in 2005. The ICSC-Goldman Sachs store sales series previously was known as ICSC-UBS before Goldman Sach's involvement with ICSC. The name change took place with the September 30, 2008 release.

Redbook
08:55 ET

Definition

A weekly measure of sales at chain stores, discounters, and department stores. It is a less consistent indicator of retail sales than the weekly ICSC index. It is also calculated differently than other indicators. For instance, figures for the first week of the month are compared with the average for the entire previous month. When two weeks are available, then these are compared with the average for the previous month, and so on. It might be more useful to compare year-over-year figures since these are indeed compared to the comparable week a year ago. This index is correlated with the general merchandise portion of retail sales covering only about 10 percent of total retail sales.

Why Do Investors Care?

Consumer spending accounts for two-thirds of the economy, so if you know what consumers are up to, you'll have a pretty good handle on where the economy is headed. Needless to say, that's a big advantage for investors.

The pattern in consumer spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth. This balance was achieved through much of the nineties. For this reason alone, investors in the stock and bond markets enjoyed huge gains during the bull market of the 1990s. Retail sales growth did slow down in tandem with the equity market in 2000 and 2001, but then rebounded at a healthy pace between 2003 and 2005.

The Redbook is one of the more timely indicators of consumer spending, since it is reported every week. It gets extra attention around the holiday season when retailers make most of their profits. It is also a useful indicator when special factors can cause economic activity to momentarily slide. For instance, once again, it was widely watched in the aftermath of Hurricanes Katrina and Rita which hit New Orleans and the Gulf Coast in 2005.

S&P Case-Shiller HPI

9:00 AM

Definition

The S&P/Case-Shiller® home price index tracks monthly changes in the value of residential real estate in 20 metropolitan regions across the U.S. The composite indexes and the regional indexes are seen by the markets as measuring changes in existing home prices and are based on single-family home resales. The key composite series are for the longer-running, original 10-city composite series and the newer and expanded 20-city composite. A national index is published quarterly. The indexes are based on single-family dwellings with two or more sales transactions. Condominiums and co-ops are excluded as is new construction. The data are compiled for S&P by Fiserv, Inc. The S&P/Case-Shiller Home Price Indices are published monthly on the last Tuesday of each month at 9:00 AM ET. The latest data are reported with a two-month lag. For example data released in January 2008 were for November 2007.

Why Investor's Care

Home values affect much in the economy — especially the housing and consumer sectors. Periods of rising home values encourage new construction while periods of soft home prices can damp housing starts. Changes in home values play key roles in consumer spending and in consumer financial health. During the first half of this decade sharply rising home prices boosted how much home equity households held. In turn, this increased consumers’ ability to spend, based on wealth effects and from being able to draw upon expanding home equity lines of credit.

With the onset of the credit crunch in mid-2007, weakness in home prices has had the reverse impact on the economy. New housing construction has been impaired and consumers have not been able to draw on home equity lines of credit as in recent years. But an additional problem for consumers is that a decline in home values reduces the ability of a home owner to refinance. During 2007 and into 2008 this became a major problem for subprime mortgage borrowers as adjustable rate mortgages reached the end of the low, “teaser rate” phase and ratcheted upward. Many subprime borrowers had bet on higher home values to lead to refinancing into an affordable fixed rate mortgage but with home equity values down, some lenders balked at refinancing subprime borrowers.

Many economists believe that the U.S. economy and especially the depressed housing sector will not fully stabilize until home prices firm back up. This makes watching home prices all the more important for the investor.

Consumer Confidence
10:00 AM
Consensus is 39.0

Market Consensus Before Announcement

The Conference Board's consumer confidence index in December hit a new low for the recession, dropping nearly 7 points 38.0. The present situation component, at 29.4, fell more than 10 points and was at its lowest level since the early 1990s. The expectations index - which typically turns up or down sooner than the present situation index - gave no sign of encouragement, sinking about 2 points. More recent and negative numbers for building permits and the stock market indicate another down month for the leading index in December.

Consumer confidence Consensus Forecast for December 08: 39.0
Range: 35.0 to 45.0

Typically retail sales will move in tandem with consumer optimism - although not necessarily each and every month.

Data Source: Haver Analytics

2009 Release Schedule

Released On:

Released For:

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Definition
The Conference Board compiles a survey of consumer attitudes on present economic conditions and expectations of future conditions. Five thousand consumers across the country are surveyed each month. While the level of consumer confidence is associated with consumer spending, the two do not move in tandem each and every month.

Why Do Investors Care?
The pattern in consumer attitudes and spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth. This balance was achieved through much of the nineties. For this reason alone, investors in the stock and bond markets enjoyed huge gains during the bull market of the 1990s. Consumer confidence did shift down in tandem with the equity market between 2000 and 2002 and then recovered in 2003 and 2004. Consumers became more pessimistic in 2005 when gasoline prices surged.

Consumer spending accounts for more than two-thirds of the economy, so the markets are always dying to know what consumers are up to and how they might behave in the near future. The more confident consumers are about the economy and their own personal finances, the more likely they are to spend. With this in mind, it's easy to see how this index of consumer attitudes gives insight to the direction of the economy. Just note that changes in consumer confidence and retail sales don't move in tandem month by month.

Wednesday January 28th

MBA Purchase Applications
07:00ET

Definition

The Mortgage Bankers' Association compiles various mortgage loan indexes. The purchase applications index measures applications at mortgage lenders. This is a leading indicator for single-family home sales and housing construction.

Why Do Investors Care?

This provides a gauge of not only the demand for housing, but economic momentum. People have to be feeling pretty comfortable and confident in their own financial position to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as the Mortgage Bankers Association purchase applications, investors can gain specific investment ideas as well as broad guidance for managing a portfolio.

Each time the construction of a new home begins, it translates to more construction jobs, and income which will be pumped back into the economy. Once a home is sold, it generates revenues for the home builder and the realtor. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items new home buyers might purchase. The economic "ripple effect" can be substantial especially when you think a hundred thousand new households around the country are doing this every month.

Since the economic backdrop is the most pervasive influence on financial markets, housing construction has a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the MBA purchase applications index carries valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies.

EIA Petroleum Status Report (Pay attention to this one)
10:35 ET

Definition
The Energy Information Administration (EIA) provides weekly information on petroleum inventories in the U.S., whether produced here or abroad. The level of inventories helps determine prices for petroleum products.

Why Do Investors Care?
Petroleum product prices are determined by supply and demand - just like any other good and service. During periods of strong economic growth, one would expect demand to be robust. If inventories are low, this will lead to increases in crude oil prices - or price increases for a wide variety of petroleum products such as gasoline or heating oil. If inventories are high and rising in a period of strong demand, prices may not need to increase at all, or as much. During a period of sluggish economic activity, demand for crude oil may not be as strong. If inventories are rising, this may push down oil prices.

Crude oil is an important commodity in the global market. Prices fluctuate depending on supply and demand conditions in the world. Since oil is such an important part of the economy, it can also help determine the direction of inflation. In the U.S. consumer prices have moderated whenever oil prices have fallen, but have accelerated when oil prices have risen.

FOMC Meeting Announcement
Consensus: 0 to 0.25% ( Federal Funds rate)

Market Consensus Before Announcement

The FOMC announcement for the January 27-28 FOMC policy meeting is expected to leave the fed funds target range unchanged at zero to 0.25 percent. Markets will be focusing on language in the text indicating any specifics about further Fed quantitative easing and on what the Fed's views are about economic growth.

The Fed closely monitors the core PCE price index to indicate whether or not policy is approximately correct, overly accommodative, or too restrictive. The PCE price index is preferred to the CPI because it is more closely aligned to the cost of living than the CPI (which measures a fixed basket of goods & services.) This chart covers monthly data and the fed funds target rate reflects the monthly average. As such, it will not correspond to the most recent fed funds rate target announced by the Fed.

Data Source: Haver Analytics

2009 Release Schedule

Released On:	1/28	3/17	4/29	6/24	8/11	9/22	11/4	12/15

Why Do Investors Care?
The Fed determines interest rate policy at FOMC meetings. These meetings occur roughly every six weeks and are the single most influential event for the markets. For weeks in advance, market participants speculate about the possibility of an interest rate change -- or a change in the wording of the post-FOMC announcement that suggests a shift in policy -- at these meetings. If the outcome is different from expectations, the impact on the markets can be dramatic and far-reaching.

The interest rate set by the Fed, the federal funds rate, serves as a benchmark for all other rates. A change in the fed funds rate, the lending rate banks charge each other for the use of overnight funds, translates directly through to all other interest rates from Treasury bonds to mortgage loans. It also changes the dynamics of competition for investor dollars: when bonds yield 10 percent, they will attract more money away from stocks than when they only yield 5 percent.

The level of interest rates affects the economy. Higher interest rates tend to slow economic activity; lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, few homes or cars will be purchased when interest rates rise.

Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the financial markets, while lower interest rates are bullish.

Thursday January 29th

Durable Goods Orders
8:30 ET
Consensus -2.0%

Market Consensus Before Announcement
Durable goods orders in November continued to contract. Durable goods orders fell 1.5 percent in November, following an 8.5 percent drop in October (previously estimated as 1.0 percent and 8.4 percent, respectively in the advance report). Excluding the transportation component, new orders partially rebounded 0.6 percent, after declining 6.9 percent the month before. Strength in the latest month was primarily in defense capital goods. Excluding defense, new orders fell 0.9 percent.

New orders for durable goods Consensus Forecast for December 08: -2.0 percent
Range: -6.0 percent to +1.2 percent

New orders for durable goods, ex-trans., Consensus Forecast for December 08: -2.7 percent
Range: -4.0 percent to 0.0 percent

Monthly fluctuations in durable goods orders are frequent and large and skew the underlying trend in the data. In fact, even the yearly change must be viewed carefully because of the volatility in this series.

Data Source: Haver Analytics

2009 Release Schedule

Released On:

Released For:

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Definition
Durable goods orders reflect the new orders placed with domestic manufacturers for immediate and future delivery of factory hard goods. The first release, the advance, provides an early estimate of durable goods orders. About two weeks later, more complete and revised data are available in the factory orders report. The data for the previous month are usually revised a second time upon the release of the new month's data. (Bureau of the Census, U.S. Department of Commerce)

Why Do Investors Care?
Investors want to keep their finger on the pulse of the economy because it usually dictates how various types of investments will perform. Rising equity prices thrive on growing corporate profits - which in turn stem from healthy economic growth. Healthy economic growth is not necessarily a negative for the bond market, but bond investors are highly sensitive to inflationary pressures. When the economy is growing too quickly and can't meet demand, it can pave the road for inflation. By tracking economic data such durable goods orders, investors will know what the economic backdrop is for these markets and their portfolios.

Orders for durable goods show how busy factories will be in the months to come, as manufacturers work to fill those orders. The data not only provide insight to demand for items such as refrigerators and cars, but also business investment such as industrial machinery, electrical machinery and computers. If companies commit to spending more on equipment and other capital, they are obviously experiencing sustainable growth in their business. Increased expenditures on investment goods set the stage for greater productive capacity in the country and reduces the prospects for inflation.

Durable goods orders tell investors what to expect from the manufacturing sector, a major component of the economy, and therefore a major influence on their investments.

Jobless Claims
08:30ET ET
Consensus 575K

Market Consensus Before Announcement
Initial jobless claims for the January 17 week surged 62,000 to 589,000, up from 527,000 in the prior week. The 589,000 level was matched once in December but otherwise is the highest since the early 1980s. Yes, initial claims clearly are at recessionary heights. But the picture for continuing claims has been worsening even more. Continuing claims for the January 10 week rose 97,000 to 4.607 million.

Jobless Claims Consensus Forecast for 1/24/08: 575,000
Range: 540,000 to 650,000

Weekly series fluctuate more dramatically than monthly series even when the series are adjusted for seasonal variation. The 4-week moving average gives a better perspective on the underlying trend.

Data Source: Haver Analytics

Definition
New unemployment claims are compiled weekly to show the number of individuals who filed for unemployment insurance for the first time. An increasing (decreasing) trend suggests a deteriorating (improving) labor market. The four-week moving average of new claims smoothes out weekly volatility.

Why Do Investors Care?
Jobless claims are an easy way to gauge the strength of the job market. The fewer people filing for unemployment benefits, the more have jobs, and that tells investors a great deal about the economy. Nearly every job comes with an income that gives a household spending power. Spending greases the wheels of the economy and keeps it growing, so a stronger job market generates a healthier economy.

There's a downside to it, though. Unemployment claims, and therefore the number of job seekers, can fall to such a low level that businesses have a tough time finding new workers. They might have to pay overtime wages to current staff, use higher wages to lure people from other jobs, and in general spend more on labor costs because of a shortage of workers. This leads to wage inflation, which is bad news for the stock and bond markets. Federal Reserve officials are always on the look out for inflationary pressures.

By tracking the number of jobless claims, investors can gain a sense of how tight, or how loose, the job market is. If wage inflation threatens, it's a good bet that interest rates will rise, bond and stock prices will fall, and the only investors in a good mood will be the ones who tracked jobless claims and adjusted their portfolios to anticipate these events.

Just remember, the lower the number of unemployment claims, the stronger the job market, and vice versa.

New Home Sales
08:30ET
Consensus 400,000

Market Consensus Before Announcement
New home sales set a new low with sales down 2.9 percent in November to a 407,000 annual rate. The year-on-year rate is an abysmal minus 35.3 percent. Supply of new home sales remains extremely heavy, at 11.5 months for the third straight month over 11 months. The median price did firm in the latest month, rising 2.7 percent, and likely due to a faster drop off in low end sales. Home prices on a year-ago basis are down 11.5 percent.

New home sales Consensus Forecast for December 08: 400 thousand-unit annual rate
Range: 350 thousand to 410 thousand-unit annual rate

There is no question that lower interest rates boost home sales. Other factors also impact housing decisions, such as employment and income growth, and wealth stemming from stock market gains.

Data Source: Haver Analytics

2009 Release Schedule

Released On:

Released For:

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Definition
New home sales measure the number of newly constructed homes with a committed sale during the month. The level of new home sales indicates housing market trends and, in turn, economic momentum and consumer purchases of furniture and appliances.

Each time the construction of a new home begins, it translates to more construction jobs, and income which will be pumped back into the economy. Once the home is sold, it generates revenues for the home builder and the realtor. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items new home buyers might purchase. The economic "ripple effect" can be substantial especially when you think a hundred thousand new households around the country are doing this every month.

Since the economic backdrop is the most pervasive influence on financial markets, new home sales have a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the new home sales data carry valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies.

EIA Natural Gas Report (Pay attention to this one)

10:35 ET

Definition
The Energy Information Administration (EIA) provides weekly information on natural gas stocks in underground storage for the U.S., and three regions of the country. The level of inventories help determine prices for natural gas products.

Why Do Investors Care?
Natural gas product prices are determined by supply and demand - just like any other good and service. During periods of strong economic growth, one would expect demand to be robust. If inventories are low, this will lead to increases in natural gas. If inventories are high and rising in a period of strong demand, prices may not need to increase at all, or as much. During a period of sluggish economic activity, demand for natural gas may not be as strong. If inventories are rising, this may push down oil prices.

Friday January 30th

Gross Domestic Product (preliminary)
08:30 ET
Real GDP-Q/Q change- SAAR -5.4%
GDP price index -Q/Q change- SAAR 0.6%

Market Consensus Before Announcement
GDP for third quarter posted an annualized contraction of 0.5 percent decline from the previous quarter. Overall for the quarter, weakness was led by a drop in personal consumption and a decline in residential investment. On the inflation front, the GDP price index increased an annualized 3.9 percent boost. Headline PCE inflation was still hot from high oil prices, coming in at annualized 5.0 percent, compared to core PCE inflation which rose 2.4 percent. Economists are expecting a sharp drop in fourth quarter GDP with weakness widespread among components. However, headline inflation is expected to ease.

Real GDP Consensus Forecast for advance Q1 08: -5.4 percent annual rate
Range: -7.0 to -3.0 percent annual rate

GDP price index Consensus Forecast for advance Q1 08: +0.6 percent annual rate
Range: -3.0 to +3.0 percent annual rate

Real GDP growth is always quoted at a quarterly annual rate. It measures how much the economy has grown over a three-month period. Quarterly growth rates are often volatile; consequently, economists also like to look at the year-over-year growth in GDP. The yearly changes tend to be more stable.

Data Source: Haver Analytics

It is common to compare quarterly changes at annual rates in the GDP deflator. These can be volatile, just like the quarterly swings in real GDP growth; as a result, the trend in inflation is better determined by year- over- year changes.

Data Source: Haver Analytics

Definition

Gross Domestic Product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy.

Why Do Investors Care?

GDP is the all-inclusive measure of economic activity. Investors need to closely track the economy because it usually dictates how investments will perform. Investors in the stock market like to see healthy economic growth because robust business activity translates to higher corporate profits. Bond investors are more highly sensitive to inflation and robust economic activity could potentially pave the road to inflation. By tracking economic data such as GDP, investors will know what the economic backdrop is for these markets and their portfolios.

The GDP report contains a treasure-trove of information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. GDP components such as consumer spending, business and residential investment, and price (inflation) indexes illuminate the economy's undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.

Employment Cost Index
Consensus: 0.7%

Market Consensus Before Announcement
The employment cost index for civilian workers remained mild in the third quarter, rising 0.7 percent in the third quarter, matching both the second and first quarters. Meanwhile, the year-on-year rate of 2.9 percent was down 2 tenths from the second quarter. With labor markets declining and with companies cutting benefits, employment costs are not a worry for the Fed in terms of inflation pressures. Indeed, a big chunk of the softness has been from employers passing along a bigger share of medical insurance costs on to employees. Benefit costs rose only 0.6 percent in the third quarter, with the year-on-year rate down 3 tenths to a very mild 2.6 percent. Wages & salaries rose 0.7 percent in the quarter for a 3.1 percent year-ago pace.

Employment cost index Consensus Forecast for Q4 08: +0.7 percent simple quarterly rate
Range: +0.4 to +0.9 percent simple quarterly rate

The employment cost index measured total compensation costs which include wages and salaries and also benefits. Benefits include vacations, but the primary mover is health insurance premiums.

Data Source: Haver Analytics

2009 Release Schedule

Released On:	1/30	4/30	7/31	10/30
Released For:	Q4:08	Q1:09	Q2:09	Q3:09

Definition
A measure of total employee compensation costs, including wages and salaries as well as benefits. The employment cost index (ECI) is the broadest measure of labor costs.

Why Do Investors Care?
The employment cost index is an easy way to evaluate wage trends and the risk of wage inflation. Wage inflation is high on the Federal Reserve's enemy list. Fed officials are always on the lookout for the prospects of inflationary pressures. Wage pressures tend to percolate when economic activity is booming and the demand for labor is rising rapidly. During economic downturns, wage pressures tend to be subdued because labor demand is down.

By tracking labor costs, investors can gain a sense of whether businesses will feel the need to raise prices. If wage inflation threatens, it's a good bet that interest rates will rise, bond and stock prices will fall, and the only investors in a good mood will be the ones who tracked the employment cost index and adjusted their portfolios to anticipate these events.

NAPM-Chicago
08:30ET
Consensus 34.0

Market Consensus Before Announcement
The NAPM-Chicago purchasing managers' index pointed to continued deterioration in the Chicago area economy with the main index for December deep in negative territory at 34.1 - one of the lowest readings in the 40-year history of the report. But the index is still above the June 1980 record low of 21.3. However, prices paid are at a record low, down more than 20 points to 30.5 and signaling that buyers are scarce.

NAPM-Chicago Consensus Forecast for January 09: 34.0
Range: 29.9 to 38.8

The NAPM-Chicago Survey registers manufacturing and non-manufacturing activity in the Chicago region. Investors care about this indicator because the Chicago region mirrors the nation in its distribution of manufacturing activity. Consequently, the NAPM-Chicago survey often moves together with the ISM index, but is reported one day in advance.

Data Source: Haver Analytics

2009 Release Schedule

Released On:	1/30	2/27	3/31	4/30	5/29	6/30	7/31	8/31	9/30	10/30	11/30
Released For:	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov

Definition
The National Association of Purchasing Management - Chicago compiles a survey and a composite diffusion index of business conditions in the Chicago area. Manufacturing and non-manufacturing firms are both surveyed, but until recently, market players have believed that the survey primarily covers the manufacturing sector. Readings above 50 percent indicate an expanding business sector. The NAPM - Chicago is considered a leading indicator of the ISM manufacturing index.

Why Do Investors Care?
Investors should track economic data like the NAPM - Chicago to understand the economic backdrop for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers a moderate growth environment that won't generate inflationary pressures.
The NAPM - Chicago gives a detailed look at the Chicago region's manufacturing and non-manufacturing sectors. Many market players don't realize that non-manufacturing activity is covered in this index and tend to focus on the manufacturing side only. Consequently, market players consider this as a leading indicator for the ISM manufacturing survey. On its own, it can be viewed as a regional indicator of general business activity. Some of the NAPM - Chicago's sub-indexes also provide insight on commodity prices and other clues on inflation. The Federal Reserve closely watches this report because in its long history, it has proven to be a good indicator of business activity as well as inflation. As a result, the financial markets can be highly sensitive to this report.

Consumer Sentiment
10:00 ET
Consensus 61.9

Market Consensus Before Announcement

The Reuter's/University of Michigan's Consumer sentiment index shows a consumer sector that is very worried about the economy as this index in mid-January remained near historic lows. The Reuters/University of Michigan consumer sentiment index edged 8 tenths higher to 61.9 in an insignificant gain for the preliminary January reading. The most interesting readings of the report were for inflation expectations, which have begun to turn higher with 1-year expectations up 3 tenths at 2.0 percent and 5-year expectations up 4 tenths at 3.0 percent. Apparently consumers are noticing how much bailout money is being thrown around.

Consumer sentiment Consensus Forecast for final January 08: 61.9
Range: 59.0 to 65.0

[Chart]

Consumer sentiment is mainly affected by inflation and employment conditions. However, consumers are also impacted by current events such as bear & bull markets, geopolitical events such as war and terrorist attacks. Investors monitor consumer sentiment because it tends to have an impact on consumer spending over the long run (although not necessarily on a monthly basis.)

Data Source: Haver Analytics

2009 Release Schedule

Released On:

Released For:

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Released On:

Released For:

Aug

Sep

Oct

Nov

Dec

Definition
The University of Michigan consumer surveyquestions 500 households each month on their financial conditions and attitudes about the economy. Consumer sentiment is directly related to the strength of consumer spending. Consumer confidence and consumer sentiment are two ways of talking about consumer attitudes. Among economic reports, consumer sentiment refers to the Michigan survey while consumer confidence refers to The Conference Board's survey.

Farm Prices

3:00 PM ET

Definition

The Department of Agriculture releases the index of prices received by farmers at the end of the month for the current month. It reflects changes through the middle of the month. The index is not adjusted for seasonal variation. It includes crop prices and livestock & product prices. Analysts monitor farm prices in order to see early warnings of inflation or deflationary pressures in the economy.

Why Do Investors Care?
Farm prices are a leading indicator of food price changes in the producer and consumer price indices. There is not a one-to-one correlation, but general trends move in tandem.

Investors need to monitor inflation closely. An individual investor who understands the process of inflation and how inflation influences the markets will no doubt benefit over those investors that don't understand the consequences of inflation.

Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how data such as farm prices influence the markets - and your investments.

If someone borrows $100 dollars from you today and promises to repay it in one year with interest, how much interest should you charge? The answer depends largely on inflation, because you know that the $100 won't be able to buy the same amount of goods and services a year from now, as it does today. If you were in a country where prices doubled every couple of months, you might want to charge 400% interest for a total payoff of $500 at the end of the year. In the United States, farm prices tells us that food prices were falling through the summer of 2005. This represents only one sector of the economy though. At the same time, the CPI was rising 3 to 3.5 percent during this period. You might want to add in one or two percentage points to cover default risk and the opportunity cost, but inflation remains the key variable in what interest rate you would charge.

Inflation (along with default risk and opportunity cost) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates accordingly. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.

By tracking the trends in inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform.

That's it for this week,

Trade safely

Yours truly,

Eric LeRiche

http://www.InvestorRules.com

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The Stock Market Pulse

January 26th, 2009

Economic Calendar Data Source: Bloomberghttp://www.bloomberg.com/markets/ecalendar/index.html

Economic Calendar Data Source: Bloomberg http://www.bloomberg.com/markets/ecalendar/index.html