The Stock Market Pulse

($49.95/month value)

Week of February 02nd, 2009

 

Weekly review of the markets

 

Last week, we mentioned that the negative trend still prevailed but since the Volatility Index (VIX) seemed to be settling down we were hoping we had reached the bottom of this "spiral of death"...

Monday, started strong with existing home sales report coming positive with a 6.5% increase. Also, McDonald's earnings beat estimates with a 7% increase. As alluded to, these news boosted the morale of investors early on but it didn't last long and if it wasn;t for a late day rally it wouldn't have been a positive day in the end.

Tuesday, the FOMC meeting started and its decion was expected the next day so not much was in play on that day. The consumer confidence report came out a little lower then expected at 37.7 vs 39.0; a slight deception that didn't prevent the market from closing higher again.

Wednesday, the rumor was that the governement would create a "bad bank" which would acquire the bad debts from existing banks. This would, in effect, increase liquidities and reduce the need from banks to raise capital in the market which of course has a diluting effect shareholders don't like, of course... This news was very much welcomed by the market which opened higher and we finished higher for a third consecutive day helped by the Fed's announcement that rates would remained unchanged, as anticipated, combined with its reiteration that it would do whatever it takes to pump liquidity into the market to help it up.

Thursday new home sales came out lower then expected coming down 15%. Jobless claims reached a level nerver seen since the 40's. On the positive side the Obama plan was accepted by the house of representatives and next in line is the Senat. Nothing worth mentioning on the earnings front so after three consecutive "up" days, we spent all day taking profits which obviously brought a negative close.

Friday the US GDP report confirmed they are clearly in a recession; Q4 came in at 3.8%. This represents the worst drop since 1982. The Chicago NAPM came out slightly lower at 33.3 vs 34.9. These results didn't help and we ended up closing down taking most of the gains of the first three days of the week.

This Week

Last week started strong with three consecutive "up" days but the wheels fell off starting Thusrday and it got worst on Friday. Job losses are continuing to increase while the economy is only getting worst, with no end in sight which is probably causing even the most optimistics to reconsider their position... Next week will be an important one in terms of economic indicator news with the Construction spending, the ISM and Job datas which are all expected to come out as weak as ever. On a positive side, since we are already expectig the worst, the odds of a surprise are very high so don't blink!

Technically, the double bottom is turning into a negative symetrical triangle whihc is about to be breached.

The implications of such a scednario are disastrous since this means we could see the DowJones seek as low as 6000!(see graph below)

 

In the case of the SPX, we could go as low as 600 ( see graph below)

 

 

And finally, in the case of Nasdaq, 900 is a real possibility! ( see graph below)

 

 

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

 

Economic Calendar Data Source: Bloomberghttp://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 February 2nd  

Personal Income and Outlays  ( market moving indicator)
08:30ET
 

Highlights
Both income and spending dropped further in December, corroborating the view that the recession is deepening. Personal income in December dipped 0.2 percent, following a 0.4 percent fall in November. The December drop was not as bad as the consensus projection for a 0.4 percent decrease. Within personal income, the wages and salaries component posted a 0.3 percent decline after a 0.2 percent fall in November.

Consumer spending continued to retreat in December, plunging 1.0 percent after a 0.8 percent drop the prior month. Personal consumption has declined for six months in a row. The December decrease was a little below the market forecast for 0.9 percent plummet.

On the inflation front, the headline PCE price index declined 0.5 percent, following a 1.1 percent drop in November. The core PCE price index was unchanged for the third month in a row and matched the consensus forecast.

Year on year, personal income growth declined to up 1.4 percent from up 2.1 percent in November. Headline PCE inflation slowed to up 0.6 percent from up 1.4 percent the previous month. Core PCE inflation slipped to 1.7 percent from 1.9 percent in November. The core inflation number clearly is within the Fed’s implicit 1.5 to 2 percent inflation target but the headline number is actually well below the Fed’s comfort zone.

Consumers clearly are holding onto their money more than indicated by incomes. Unemployment worries are keeping spending down. Economic momentum heading into the first quarter clearly is downward. However, for trading today, the numbers overall are about as expected and should have modest impact on the markets. For longer-term perspective, the numbers indicate that the Fed needs to continue with its quantitative easing and that the Obama Administration likely needs to pass fiscal stimulus that boosts the household sector.
Market Consensus Before Announcement
Personal income in November slipped while spending has worsened. Personal income in November dipped 0.2 percent while the wages and salaries component decreased 0.1 percent. The really worrisome part of the report, however, was personal consumption expenditures falling another 0.6 percent after plummeting 1.0 percent in October. But there was good news on the inflation front. The headline PCE price index fell 1.1 percent, following a 0.5 percent decline in October. The core PCE price index was unchanged in both November and October.

Personal income Consensus Forecast for December 08: -0.4 percent
Range: -1.0 to 0.0 percent

Personal consumption expenditures Consensus Forecast for December 08: -0.9 percent
Range: -1.7 to -0.5 percent

Core PCE price index Consensus Forecast for December 08, m/m: 0.0 percent
Range: -0.1 to +0.1 percent

Core PCE price index Consensus Forecast for December 08, y/y: +1.9 percent
Range: +1.8 to +2.0 percent  

Changes in taxes or social security cost of living adjustments can cause some sharp variations in monthly disposable income growth. However, on the whole, monthly changes in disposable income fluctuate less than monthly changes in personal consumption expenditures.

Data Source: Haver Analytics  

Monthly changes in personal consumption expenditures are usually skewed by large changes in spending on durable goods. Spending on nondurable goods and services tend to be less volatile from one month to the next.

Data Source: Haver Analytics  

2009 Release Schedule

Released On: 2/2 3/2 3/27 4/30 6/1 6/26 8/4 8/28 10/1 10/30 11/25 12/23 Released For: Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

 

Definition
Personal income is the dollar value of income received from all sources by individuals. Personal outlays include consumer purchases of durable and nondurable goods, and services.
Why Do Investors Care?
The income and outlays data are another handy way to gauge the strength of the consumer sector in this economy and where it is headed. Income gives households the power to spend and/or save. Spending greases the wheels of the economy and keeps it growing. Savings are often invested in the financial markets and can drive up the prices of stocks and bonds. Even if savings simply go into a bank account, part of those funds are typically used by the bank for lending and therefore contribute to economic activity. In the past twenty years, personal savings have diminished rapidly as consumers have spent a greater and greater share of their income.

The consumption (outlays) part of this report is even more directly tied to the economy, which we know usually dictates how the markets perform. 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. Investors can see how consumers are directing their spending, whether they are buying durable goods, nondurable goods or services. Needless to say, that's a big advantage for investors who determine which companies' shares they will buy.

 

 

ISM Mfg Index (market moving indicator)
10:00 ET
 

Highlights

The ISM manufacturing report shows less weakness in what may offer hope that economic contraction is slowing. The ISM's manufacturing index rose more than 2-1/2 points to 35.6 reflecting, fortunately, improvement in new orders which rose to 33.2 from 23.1. The 10-plus point move seems dramatic but the 33 level is still very low and indicates that many more manufacturers are reporting month-to-month weakness than strength. Backlog orders likewise improved, up 6-1/2 points to 29.5.

The employment index, unfortunately, did not improve, holding unchanged at a 29.9 level that points squarely at continued and severe payroll contraction for the manufacturing component in Friday's employment report. Other readings included an 11 point rise in prices paid to 29.0 that also suggests demand destruction is slowing. Inventories, at 37.5, are contracting but not fast enough given the general decline in demand and given a 55.5 reading in customer inventories which indicates manufacturers think supplies at other companies are too high.

In the December report all 18 industries in the report showed contraction while January saw two industries rebound. Stocks firmed slightly in reaction to the results which may not support a new optimism but on the other hand does not justify greater pessimism.
Market Consensus Before Announcement
The Institute for Supply Management's manufacturing index in December showed a worsening in the contraction of the manufacturing sector. The headline index dropped to 32.4 -- one of the very lowest readings in 60 years of data and down from 36.2 the month before. Looking ahead, the picture is still gloomy. The new orders index has contracted 13 consecutive months and is at the lowest level on record as is the index for orders backlogs.

ISM manufacturing index Consensus Forecast for January 09: 32.6
Range: 30.0 to 36.0

The ISM manufacturing index (formerly known as the NAPM Survey) is constructed so that any level at 50 or above signifies growth in the manufacturing sector. A level above 43 or so, but below 50, indicates that the U.S. economy is still growing even though the manufacturing sector is contracting. Any level below 43 indicates that the economy is in recession.

Data Source: Haver Analytics  

2009 Release Schedule

Released On: 1/2 2/2 3/2 4/1 5/1 6/1 7/1 8/3 9/1 10/1 11/2 12/1 Released For: Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

Definition
The Institute for Supply Management surveys more than 300 manufacturing firms on employment, production, new orders, supplier deliveries, and inventories. A composite diffusion index of national manufacturing conditions is constructed, where readings above (below) 50 percent indicate an expanding (contracting) factory sector. Export orders, import orders, backlog orders and prices paid for raw and unfinished materials are also measured, but these are not included in the overall index. (Institute for Supply Management)

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 ISM manufacturing index, 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 ISM manufacturing data give a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. More than one of the ISM sub-indexes provides insight on commodity prices and clues regarding the potential for developing inflation. The Federal Reserve keeps a close watch on this report that helps it to determine the direction of interest rates when inflation signals are flashing in these data. As a result, the bond market is highly sensitive to this report.

 

Construction Spending
10:00 AM
 

Highlights
Construction spending in December continued to plummet across all major sectors. Construction outlays fell 1.4 percent in December, after posting a 1.2 percent drop in November. The markets had expected a 1.2 percent decline for the latest month. Weakness in December was led by a sharp 3.2 percent plunge in private residential outlays. The other two major components also fell with private nonresidential decreasing 0.4 percent while public outlays declined 0.8 percent.

On a year-on-year basis, overall construction outlays were down 3.6 percent in December, compared to down 4.2 percent in November.

We used to worry only about housing but now the entire construction sector is in recession. Mortgage markets are in disarray and consumer worries over jobs are keeping housing down. Businesses are cutting back on new projects and state & local government budget shortfalls are weighing on public construction. It looks like the numbers are going to be negative for a while.

But for today, the December number was close to expectations and should have little impact on markets. Meanwhile, the ISM report was negative but not as bad as expected.
Market Consensus Before Announcement
Construction spending declined 0.6 percent in November, after dropping 0.4 percent in October. Weakness in the latest month was led by a sharp 4.2 percent decrease in private residential outlays. But the other two major components actually rose. Private nonresidential spending rose 0.7 percent while public outlays increased 1.4 percent in November. On a year-on-year basis, overall construction outlays were down 3.3 percent in November.

Construction spending Consensus Forecast for December 08: -1.2 percent
Range: -5.0 to +2.0 percent  

Over the last year, a decline in residential outlays has pulled down year-on-year growth for overall construction outlays. Nonresidential and public outlays are positive with nonresidential actually strong.

Data Source: Haver Analytics  

2009 Release Schedule

Released On: 1/5 2/2 3/2 4/1 5/4 6/1 7/1 8/3 9/1 10/1 11/2 12/1 Released For: Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct

 

Definition

The dollar value of new construction activity on residential, non-residential, and public projects. Data are available in nominal and real (inflation-adjusted) dollars.

Why Do Investors Care?

Construction spending has a direct bearing on stocks, bonds and commodities because it is a part of the economy that is affected by interest rates, business cash flow and even federal fiscal policy. In a more specific sense, trends in the construction data carry valuable clues for the stocks of home builders and large-scale construction contractors. Commodity prices such as lumber are also very sensitive to housing industry trends.

Businesses only put money into the construction of new factories or offices when they are confident that demand is strong enough to justify the expansion. The same goes for individuals making the investment in a home.

A portion of construction spending is related to government projects such as education buildings as well a highways and streets. While investors are more concerned with private construction spending, the government projects put money in the hands of laborers who then have more money to spend on goods and services.

That's why construction spending is a good indicator of the economy's momentum.

Tuesday February 3rd  

 

Motor Vehicle Sales
 

Market Consensus Before Announcement
Sales of domestic motor vehicles were extremely weak in December but still edged up to a 7.7 million annual rate from November's record low of 7.5 million units. Heavy discounting and lower gasoline prices have not helped sales much due to the recession and worries that the automakers might become bankrupt. Overall, the year 2008 was quite ugly for U.S. producers. Year-ago totals were down as follows: General Motors, down 22.7 percent; Ford, down 20.5 percent; and Chrysler, down 30.0 percent.

Motor vehicle domestic sales Consensus Forecast for January 09: 7.7 million-unit rate
Range: 7.3 to 8.1 million-unit rate  

Motor vehicles sales slowed notably in 2006 as a result of higher interest rates and a jump in gasoline prices but remained at reasonable levels due to strong income growth. Late in 2006 and in early 2007, gasoline prices were down from 2006 highs but moderating economic growth kept sales from rebounding. Truck shares hit their peak in 2005 when gasoline was cheap and remain sharply lower since gasoline prices spiked in 2006.

Data Source: Haver Analytics  

2009 Release Schedule

Released On: 1/5 2/3 3/2 4/1 5/1 6/1 7/1 8/3 9/1 10/1 11/2 12/1 Released For: Dec Jan 2009 Feb 2009 Mar 2009 Apr 2009 May Jun 2009 Jul 2009 Aug 2009 Sep 2009 Oct 2009 Nov 2009

 

Definition

Unit sales of domestically produced cars and light duty trucks (including sport utility vehicles and mini-vans). Individual manufacturers report usually report sales on the first business day of the month. Motor vehicle sales are good indicators of trends in consumer spending.
Why Do Investors Care?

Since motor vehicle sales are an important element of consumer spending, market players watch this closely to get a handle on the direction of the economy. The pattern of consumption spending is one of the foremost influences on stock and bond markets. Strong economic growth translates to healthy corporate profits and higher stock prices. The bond market focus is on 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, although motor vehicle sales moderated to a lesser extent. A low interest rate environment through 2005 curtailed the decline in motor vehicle sales. Granted, since automakers offered many incentives to boost sales in the past several years, their profits have suffered.

In a more specific sense, auto and truck sales show market conditions for auto makers and the slew of auto-related companies. These figures can influence particular stock prices and provide insight to investment opportunities in this industry. Given that most consumers borrow money to buy cars or trucks, sales also reflect confidence in current and future economic conditions.

 

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.

 

Pending Home Sales Index
10:00ET
 

Market Consensus Before Announcement

The pending home sales index fell 4.0 percent in November pointing to deepening declines for the housing sector. Year-on-year rates are also showing accelerating deterioration, at minus 5.3 percent in November compared with minus 1.0 percent in October. But last week, we saw a pickup in existing home sales. Perhaps recent declines in mortgage rates are helping to offset the damage to home sales from higher unemployment. On the other hand, the bump up in existing sales may have been due to strong seasonal factors in December. Nonetheless, markets will be watching the pending sales index for any signs of improvement in the housing sector.

Pending home sales Consensus Forecast for December 08: 82.3
Range: 78.2 to 84.0

2009 Release Schedule

Released On: 1/6 2/3 3/3 4/1 5/4 6/2 7/1 8/4 9/1 10/1 11/2 12/1 Released For: Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct

Definition
TThe National Association of Realtors developed the pending home sales index as a leading indicator of housing activity. As such, it is a leading indicator of existing home sales, not new home sales. A pending sale is one in which a contract was signed, but not yet closed. It usually takes four to six weeks to close a contracted sale.

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 the pending home sales index which measures 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

 

Wednesday February 4th    

 

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.

 

Challenger Job-Cut Report
7:30ET

Definition
A monthly report on the number of announced corporate layoffs. It is not adjusted for seasonal variations. The report indicates trends in the labor market.

Why Do Investors Care?
These statistics on layoffs help us gauge the strength of the job market. Fewer layoffs suggests more people have jobs. Every job comes with an income, which gives a household spending power. Spending greases the wheels of the economy and keeps it growing, so the stronger the job market, the healthier the economy.

There's a downside to it, though, which is relevant these days. When few people are looking for jobs, businesses can have a tough time finding new workers. They might have to pay overtime 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.

The Challenger report breaks down the layoffs into industries, which provides insight to trends that likely will effect stock prices in specific industries. Note that not all announced layoffs culminate in actual layoffs.

 

ADP Employment Report
8:15 ET

Definition
The ADP national employment report is computed from a subset of ADP records that in the last six months of 2006, represented approximately 364,000 U.S. business clients and approximately 22 million U.S. employees working in all private industrial sectors. The data are collected for pay periods that can be interpolated to include the week of the 12th of each month, and processed with statistical methodologies similar to those used by the U.S. Bureau of Labor Statistics to compute employment from its monthly survey of establishments. ADP contracted with Macroeconomic Advisors to compute a monthly report that would ultimately help to predict monthly nonfarm payrolls from the Bureau of Labor Statistic's employment situation. The ADP report only covers private (excluding government) payrolls at this time. (Automatic Data Processing (ADP)/Macroeconomic Advisers)

Why Do Investors Care?
Market players have become accustomed to the excitement on employment Friday and realize the rich detail of the monthly employment situation can help set the tone for the entire month. While economists have certainly improved their nonfarm payroll forecasts over the years, it is not unusual to see surprises on employment Friday. To that end, the new ADP national employment report can help improve the payroll forecast by providing information in advance of the employment report.

The employment statistics also provide insight on wage trends, and wage inflation is high on the list of enemies for the Federal Reserve. Fed officials constantly monitor this data watching for even the smallest signs of potential inflationary pressures, even when economic conditions are soggy. If inflation is under control, it is easier for the Fed to maintain a more accommodative monetary policy. If inflation is a problem, the Fed is limited in providing economic stimulus. Initially, the ADP national employment report will not have wage information, but their goal is provide wage information, along with industry and regional information as well.

Nonetheless, by tracking jobs, investors can sense the degree of tightness in the job market. If wage inflation threatens, it's a good bet that interest rates will rise; bond and stock prices will fall. No doubt that the only investors in a good mood will be the ones who watched the employment report and adjusted their portfolios to anticipate these events. In contrast, when job growth is slow or negative, then interest rates are likely to decline - boosting up bond and stock prices in the process.

 

ISM Non-Mfg Survey
10:00ET
 

Market Consensus Before Announcement
The composite index from the ISM non-manufacturing survey edged up a little over 3 points in December to 40.6. But this level is still well below the breakeven point of 50, indicating that many more purchasers are reporting contracting conditions than expanding conditions. Looking ahead, orders improved but still remained deep in negative territory, indicating continued contraction in overall activity. The new orders index stood at 39.9 in December versus 35.4 the prior month, while backlogs came in at 42.5 versus 39.5 in November.

Composite index Consensus Forecast for January 09: 39.0
Range: 37.0 to 44.0  

The ISM non-manufacturing survey does not compile a composite index like its manufacturing cousin. The business activity index, which is actually akin to the production index in the manufacturing survey, is widely followed as the key figure from this survey.

Data Source: Haver Analytics  

2009 Release Schedule

Released On: 1/6 2/4 3/4 4/3 5/5 6/3 7/6 8/5 9/3 10/5 11/4 12/3 Released For: Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

Definition
The non-manufacturing ISM surveys nearly 400 firms from 60 sectors across the United States, including agriculture, mining, construction, transportation, communications, wholesale trade and retail trade. Beginning with the January 2008 report, a new composite index was made public and is now the headline number. It is considered an indicator of the overall economic conditions for the non-manufacturing sector and consists of four equally weighted indexes: business activity, new orders, employment, and supplier deliveries.

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 like the ISM non-manufacturing survey's business activity index, 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 ISM manufacturing index has a long history - dating to the 1940s. This new report (beginning in 1998) was originally not adjusted for seasonal variation, but the ISM has since established seasonally adjusted figures for several of the ISM non-manufacturing components (including the business activity index) since 2002 and a composite index starting in 2008. As a result, the ISM non-manufacturing survey has garnered more attention and is almost as widely followed by financial market participants as its manufacturing cousin.

 

 

EIA Petroleum Status Report (Pay attention to this one)
10:30 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.

 

 

Thursday February 5th 

Chain Store Sales

Definition
Monthly sales volumes from individual department, chain, discount, and apparel stores are usually reported on the first Thursday of each month. Chain store sales correspond with roughly 10 percent of retail sales. Chain store sales are an indicator of retail sales and consumer spending trends.

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. Spending at major retail chains did slow down in tandem with the equity market in 2000 and 2001 and again in 2003, but strengthened in 2004 and 2005.

Chain store sales not only give you a sense of the big picture, but also the trends among individual retailers and different store categories. Perhaps the discount chains such as Target and Wal-Mart are doing well, but the high-end department stores such as Tiffany's are lagging. Maybe apparel specialty retailers are showing exceptional growth. These trends from the monthly chain store data can help you spot specific investment opportunities, without having to wait for the quarterly or annual reports.

Just a few words of caution. Sales are reported as a change from the same month, a year ago. It is important to know how strong sales actually were a year ago to make sense of this year's sales. In addition, sales are usually reported for "comparable stores" in case of company mergers.

 

Monster Employment Index
06:00ET

Definition
Monster collects job postings from 1,500 web sites (including Monster.com) and creates an index of job availability, akin to The Conference Board's help wanted index. The difference between the two is that one collects help wanted advertising from newspapers and the other collects from online posting. The Monster index is not seasonally adjusted.
Why Do Investors Care?
In addition to providing insight on the general strength of the economy, this report gives a sense of how many jobs employers are trying to fill. If that number is relatively high, it could mean there is a shortage of available workers and companies may have to offer higher wages to attract them. This leads to wage inflation, which is bad news for the stock and bond markets. Federal Reserve officials are always worried about the potential for inflationary pressures.

When the employment index measuring job availability is falling, this bodes well for the bond market because it implies a drop in labor demand and perhaps an economic downturn. While the Fed worries about inflation, they also are concerned about rising unemployment. A rising jobless rate can mean a more accommodative monetary policy.

The equity market prefers to see healthy economic growth and thus would rather see increases in the employment index. An increase in job demand means that consumers will have more money to spend on goods and services - and this ultimately affects profits.

Jobless Claims
08:30ET ET
Consensus 583K

Market Consensus Before Announcement Initial jobless claims rose 3,000 in the January 24 week to 588,000, indicating that the labor market is steadily worsening. Continuing claims showed special weakness for the January 17 week, the most recent data available, jumping 159,000 to a record 4.776 million. Jobless Claims Consensus Forecast for 1/31/08: 583,000 Range: 480,000 to 620,000     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.

 

Productivity and Costs
8:30ET
 

Market Consensus Before Announcement
Nonfarm productivity was weak in the third quarter, coming in at an annualized 1.3 percent. Meanwhile, third quarter unit labor costs posted a 2.8 percent gain. The worsening recession has led to a worsening in productivity and costs when compared to year-ago numbers. Year-on-year, productivity was up 2.1 percent in the third quarter while, unit labor costs came in at up 1.4 percent.

Nonfarm Productivity Consensus Forecast for initial Q4 08: +1.1 percent annual rate
Range: -1.0 to +4.0 percent annual rate

Unit Labor Costs Consensus Forecast for initial Q4 08: +2.9 percent annual rate
Range: -2.4 to +5.7 percent annual rate
.   

Nonfarm productivity growth has remained healthy during this expansion, but it has prevented employment from growing very fast and this hurt income growth to some extent. Unit labor costs tend to fall when productivity growth accelerates and then rises as productivity growth abates.

Data Source: Haver Analytics
Definition
Productivity measures the growth of labor efficiency in producing the economy's goods and services. Unit labor costs reflect the labor costs of producing each unit of output. Both are followed as indicators of future inflationary trends.

Why Do Investors Care?
Productivity growth is critical because it allows for higher wages and faster economic growth without inflationary consequences. This is a hot topic these days with the economy so strong, the labor market so tight, yet inflation so well-behaved.
Some Wall Street experts assert that dramatic productivity advances are allowing the economy to sustain a much faster pace of growth than previously thought possible. Fed chairman Greenspan has expressed skepticism about those assertions, however. In either case, the productivity data give investors important clues on how stocks and bonds can be expected to perform, and the market reactions to these releases show the true importance of productivity growth.

 

RBC CASH Index
9:00 ET

Definition
The RBC CASH (Consumer Attitudes and Spending by Household) Index is a monthly national survey of consumer attitudes on the current and future state of local economies, personal financial situations, savings, and confidence to make large investments. The CASH Index is benchmarked against a baseline score of 100, assigned in January 2002 when the Index was introduced.
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 is 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.

 

Factory Orders
14:00 ET 
 

Market Consensus Before Announcement
Factory orders fell steeply in November, down 5.7 percent (originally 4.6) percent from a downwardly revised 6.0 percent decline in October. The decline was exaggerated by a price-related collapse in new orders for nondurable goods, specifically orders for energy products. Outside of nondurable goods, the decline in the month was a much less steep 3.7 percent (previously down 1.5 percent). But more recently, durable goods orders declined another 2.6 percent in December, following a 3.7 percent decrease in November. With oil prices continuing to weaken, the nondurables component for December also is likely to be negative. Overall, December should be another bleak month for factory orders.

Factory orders Consensus Forecast for December 08: -3.0 percent
Range: -6.8 to -0.8 percent  

Even though monthly shipment data fluctuate less than new orders, both series show underlying trends more clearly by looking at year-over-year changes. In 2005 for example,new orders rose more rapidly than shipments due to large gains in aircraft orders. Aircraft orders have a long lead to shipment.

Data Source: Haver Analytics  

2009 Release Schedule

Released On: 1/6 2/5 3/5 4/2 5/1 6/3 7/2 8/5 9/2 10/2 11/3 12/4 Released For: Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct

 

Definition
Factory orders represent the dollar level of new orders for both durable and nondurable goods. This report gives more complete information than the advance durable goods report which is released one or two weeks earlier in the month.

Why Do Investors Care?
Investors want to keep their fingers on the pulse of the economy because it usually dictates how various types of investments will perform. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers more moderate growth which is less likely to cause inflationary pressures. By tracking economic data like factory orders, investors will know what the economic backdrop is for these markets and their portfolios.
The orders data show how busy factories will be in coming months as manufacturers work to fill those orders. This report provides insight to the demand for not only hard goods such as refrigerators and cars, but nondurables such as cigarettes and apparel. In addition to new orders, analysts monitor unfilled orders, an indicator of the backlog in production. Shipments reveal current sales. Inventories give a handle on the strength of current and future production. All in all, this report tells investors what to expect from the manufacturing sector, a major component of the economy and therefore a major influence on their investments.

 

 

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 February 6th  

 Employment Situation (Market moving indicators)
08:30 ET
 

Market Consensus Before Announcement
Nonfarm payroll employment for December was dismal as the number of jobs plummeted 524,000, following a drop of 584,000 in November. Payroll jobs contracted every month in 2008 for a cumulative loss of 2.6 million-the largest yearly drop since the end of World War II. Turning to wages, average hourly earnings rose 0.3 percent in December after gaining 0.4 percent in November. Wage gains were likely being kept a little high by the fact that average hourly earnings are not a fixed-weighted price index but one based on shifting components. During recession, the lower wage earners are typically cut first due to the cyclical sensitivity of low-wage retail trade and due to workers with fewer years experience often being cut first. The civilian unemployment rate surged to 7.2 percent from 6.8 percent in November. December's number was the highest since 7.3 percent for January 1993.

Nonfarm payrolls Consensus Forecast for January 09: -524,000
Range: -750,000 to -450,000

Unemployment rate Consensus Forecast for January 09: 7.5 percent
Range: 7.2 to 7.6 percent

Average workweek Consensus Forecast for January 09: 33.3 hours
Range: 33.0 to 33.4 hours

Average hourly earnings Consensus Forecast for January 09: +0.2 percent
Range: 0.0 to +0.3 percent  

During the mature phase of an economic expansion, monthly payrolls gains of 150,000 or so are considered relatively healthy. In the early stages of recovery though, gains are expected to surpass 250,000 per month.

Data Source: Haver Analytics  

The civilian unemployment rate is a lagging indicator of economic activity. During a recession, many people leave the labor force entirely, so the jobless rate may not increase as much as expected. This means that the jobless rate may continue to increase in the early stages of recovery because more people are returning to the labor force as they believe they will be able to find work. The civilian unemployment rate tends towards greater stability than payroll employment on a monthly basis. It reveals the degree to which labor resources are utilized in the economy.

Data Source: Haver Analytics  

2009 Release Schedule

Released On: 1/9 2/6 3/6 4/3 5/8 6/5 7/2 8/7 9/4 10/2 11/6 12/4 Released For: Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

 

Definition
The employment situation is a set of labor market indicators. The unemployment rate measures the number of unemployed as a percentage of the labor force. Nonfarm payroll employment counts the number of paid employees working part-time or full-time in the nation's business and government establishments. The average workweek reflects the number of hours worked in the nonfarm sector. Average hourly earnings reveal the basic hourly rate for major industries as indicated in nonfarm payrolls. (Bureau of Labor Statistics, U.S. Department of Labor)

Why Do Investors Care?
If ever there was an economic report that can move the markets, this is it! The anticipation on Wall Street each month is palpable, the reactions are dramatic, and the information for investors is invaluable. By digging just a little deeper than the headline unemployment rate, investors can take more strategic control of their portfolio and even take advantage of unique investment opportunities that often arise in the days surrounding this report.

The employment data give the most comprehensive report on how many people are looking for jobs, how many have them, what they're getting paid and how many hours they are working. These numbers are the best way to gauge the current state as well as the future direction of the economy. Nonfarm payrolls are categorized by sectors. This sector data can go a long way in helping investors determine in which economic sectors they intend to invest.

The employment statistics also provide insight on wage trends, and wage inflation is high on the list of enemies for the Federal Reserve. Fed officials constantly monitor this data watching for even the smallest signs of potential inflationary pressures, even when economic conditions are soggy. If inflation is under control, it is easier for the Fed to maintain a more accommodative monetary policy. If inflation is a problem, the Fed is limited in providing economic stimulus.

By tracking the jobs data, investors can sense the degree of tightness in the job market. If wage inflation threatens, it's a good bet that interest rates will rise; bond and stock prices will fall. No doubt that the only investors in a good mood will be the ones who watched the employment report and adjusted their portfolios to anticipate these events. In contrast, when job growth is slow or negative, then interest rates are likely to decline - boosting up bond and stock prices in the process.

 

Consumer Credit
15:00 ET
 

Market Consensus Before Announcement
Consumer credit has been taking a hit in recent months with the latest a record decline of $7.9 billion for November -- the third decline in four months. Revolving credit fell $2.8 billion, or 3.4 percent in the month, while nonrevolving credit fell $5.2 billion, or 3.9 percent.

Consumer credit Consensus Forecast for December 08: -$3.5 billion
Range: -$12.0 billion to +$1.5 billion
  

The debt-to-income ratio shows how indebted consumers are relative to income. A rising ratio indicates that consumers are taking on greater debt burdens with respect to income growth. In a growing economy, this may not be dangerous. However, indebtedness could quickly become a problem if income and employment conditions turn around. The yearly change in debt outstanding shows yearly trends in debt growth and tends to be less volatile than the monthly change.

Data Source: Haver Analytics  

2009 Release Schedule

Released On: 1/8 2/6 3/6 4/7 5/7 6/5 7/8 8/7 9/8 10/7 11/6 12/7 Released For: Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct

 

Definition

The dollar value of consumer installment credit outstanding. Changes in consumer credit indicate the state of consumer finances and portend future spending patterns.

Why Do Investors Care?
Growth in consumer credit can hold positive or negative implications for the economy and markets. Economic activity is stimulated when consumers borrow within their means to buy cars and other major purchases. On the other hand, if consumers pile up too much debt relative to their income levels, they may have to stop spending on new goods and services just to pay off old debts. That could put a big dent in economic growth.
The demand for credit also has a direct bearing on interest rates. If the demand to borrow money exceeds the supply of willing lenders, interest rates rise. If credit demand falls and many willing lenders are fighting for customers, they may offer lower interest rates to attract business.
Financial market players focus less attention on this indicator because it is reported with a long lag relative to other consumer information. Long term investors who do pay attention to this report will have a greater understanding of consumer spending ability. This will give them a lead on investment alternatives.

That's it for this week,

Trade safely

 

Yours truly,

 

 

Eric LeRiche

http://www.InvestorRules.com

 

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