The Stock Market Pulse

($49.95/month value)

Week of February 09th, 2009

 

Weekly review of the markets

 

Last week, we continued down, we had no good news on the economic front, earnings didn't bring any good surprises plus, technically, we breached down a negative triangle.

Monday, the ISM Mfg Index came out stronger then expected but Personal Income and Outlays were lower than anticipated so following two consecutive down days we opened lower. This "gap down" was filled quickly though, staying around Friday's close. At these prices, there was enough buyers to absorb the sellers.

Tuesday, no significant economic news were on tap. The market opened unchanged and stuck around all morning and that's when short started covering since it seemed the short term down trend was over thus we had a strong close.

 

Wednesday, the ISM Non-Mfg Survey came out higher than expected and jobless claims were lower then the consensus so the market seemed ready to move higher. Unfortunately there were still some uncertainties floating around like the bank rescue plan format and Obama's struggle to get his plan through the Senat. This was enough to get investors to take some profits which caused the day to close lower.

Thursday a lot of investors loaded up on financial stocks in expectation of the bank bail out plans next week which pulled the whole market higher.

Friday was the day the employment situation for January came out and the numbers were nothing short from terrible with 598000 job losses! The worst result in 34 years... Jobless claims was also lower then expected, another bad news. Ironically, both this bad news actually provoked a rally since they are forcing the hands of those in charge of accepting the bail out plan and Obama's plan; so these bad news are in fact increasing the odds these aggressive plans will be accepted "as is".

This Week

Last week left on with some optimism. The market closed higher every day except for Wednesday. Even if we had the worst employment situation in 34 years we still managed to close out the week higher. A lot of hope comes from Obama's plan which represents $937 Billion of extreme measures. It's obvious we will go through difficult times but it seems now we are starting to take a long term look at things. An example is the car manufacturer’s crisis which is far from over but regardless, we are starting to feel the optimism as the VIX chart demonstrates by coming back toward normal levels. On the economic front, we will need to wait fro Thursday’s announcement of the retail sales

Technically, at the end of 2008, I said there was a positive divergence on the MACD. This rare fact indicated, theoretically, that the market was getting stronger and a reversal was in play. The problem is that it doesn't say how long it will take... It's interesting to look back to see how much more stable the market has been since that time with the MACD hovering around the 0 level ( no tendency). The general tendency though, has been positive since October, a month before the low of November. The MACD evolution combined with the market behavior following economic data announcements are leading us to believe that we are close to a strong rally.. The million dollar question is, WHEN? Actually nobody knows but if the Senat delays the adoption of Obama's plan we will surely have to wait some more to see this long awaited rally. While we're waiting we still have our big symmetrical triangle, but we are quickly approaching its apex but the Nasdaq already pierced it to the upside which is positive for all indexes.

First look at the VIX chart:

 

In reference to the divergence comment:

 

 

And finally, the Nasdaq break out:

 

 

*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 9th  

 

Nothing that could move the market

(4-week Bill annoucement

3-month Bill auction

6- month Bill auction)

Tuesday February 10th  

 

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.

 

Wholesale Trade

Definition
Wholesale trade measures the dollar value of sales made and inventories held by merchant wholesalers. It is a component of business sales and inventories.

Why Do Investors Care?
Investors need to monitor the economy closely 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 a slower rate of growth that won't lead to inflationary pressures.
Wholesale sales and inventory data give investors a chance to look below the surface of the visible consumer economy. Activity at the wholesale level can be a precursor for consumer trends. In particular, by looking at the ratio of inventories to sales, investors can see how fast production will grow in coming months. For example, if inventory growth lags sales growth, then manufacturers will need to boost production lest product shortages occur. On the other hand, if unintended inventory accumulation occurs (i.e. sales did not meet expectations), then production will probably have to slow while those inventories are worked down. In this manner, the inventory data provide a valuable forward-looking tool for tracking the economy.

 

Wednesday February 11th    

 

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.

International Trade
08:30ET ET
Consensus -36.0B

Market Consensus Before Announcement
The U.S. international trade gap in November shrank sharply to $40.4 billion from a $56.7 billion shortfall in October. The U.S. trade deficit in November was the narrowest since $40.0 billion for November 2003. But the latest report included goods news and bad news. The good news was that lower oil prices cut sharply into imports. The bad news was that exports also fell - due to slower growth and recession overseas. In November, exports posted a 5.8 percent drop while imports plunged a monthly 12.0 percent. Both the oil and nonoil deficits shrank in November. Looking ahead, lower oil prices will likely shrink the headline deficit number for December. But we also are likely to see weak exports - meaning further damage to the U.S. manufacturing sector.

International trade balance Consensus Forecast for December 08: -$36.0 billion
Range: -$45.0 billion to -$31.0 billion

Exports grow when foreign economies are strong. The weaker the foreign exchange value of the dollar, the less expensive goods and services are to foreigners, and this also helps spurt export activity. Imports grow when U.S. economic growth is robust. Imports are also spurred by a strong foreign exchange value of the dollar.

Data Source: Haver Analytics  

The international trade balance has posted a deficit almost continuously since the 1980s. Any trade deficit is a drag on U.S. GDP growth, but a smaller deficit adds to growth, while a larger deficit decreases GDP growth.

Data Source: Haver Analytics  

2009 Release Schedule

Released On: 1/13 2/11 3/13 4/9 5/12 6/10 7/10 8/12 9/10 10/9 11/13 12/10 Released For: Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct

 

Definition
The international trade balance measures the difference between imports and exports of both tangible goods and services. Imports may act as a drag on domestic growth and they may also increase competitive pressures on domestic producers. Exports boost domestic production.

Why Do Investors Care?
Changes in the level of imports and exports, along with the difference between the two (the trade balance) are a valuable gauge of economic trends here and abroad. While these trade figures can directly impact all financial markets, they primarily affect the value of the dollar in the foreign exchange market.

Imports indicate demand for foreign goods and services here in the U.S. Exports show the demand for U.S. goods in countries overseas. The dollar can be particularly sensitive to changes in the chronic trade deficit run by the United States, since this trade imbalance creates greater demand for foreign currencies. The bond market is also sensitive to the risk of importing inflation. This report gives a breakdown of U.S. trade with major countries as well, so it can be instructive for investors who are interested in diversifying globally. For example, a trend of accelerating exports to a particular country might signal economic strength and investment opportunities in that country.

 

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.

 

Treasury Budget
14:00 ET
Consensus: -79.5

Market Consensus Before Announcement

The U.S. Treasury monthly budget report showed an $83.6 billion deficit in December and a massive deficit of $485 billion just three months into the Treasury's fiscal year. Much of the jump in outlays was tied to the TARP bailout which totaled $55 billion in December vs. $76.5 billion in November. But the Treasury was also buying agency debt, outlays that totaled a separate $21.8 billion vs. November's $23.2 billion. Looking ahead, the month of December typically shows a moderate surplus for the month and this should help trim the bleeding in December. Over the past 10 years, the average surplus for the month of December has been $13.8 billion. But history means very little these days for the budget and another massive deficit is expected for the month.

Treasury Statement Consensus Forecast for January 09: -$79.5 billion
Range: -$126.0 billion to -$72.4 billion.

The federal budget balance is not seasonally adjusted. Consequently, it is useful to compare the current month's budget deficit or surplus to the same month for a couple of years. Some months are known to have large surpluses because quarterly estimated tax payments are received by the government.

Data Source: Haver Analytics  

2009 Release Schedule

Released On: 1/13 2/11 3/11 4/10 5/12 6/10 7/13 8/12 9/11 10/13 11/12 12/10 Released For: Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

 

Definition
The U.S. Treasury releases a monthly account of the surplus or deficit of the federal government. Changes in the budget balance of the annual fiscal year (which begins in October) are followed as an indicator of budgetary trends and the thrust of fiscal policy.

Why Do Investors Care?
The budget data have several direct and indirect meanings for the financial markets. The most direct relationship lies between the size of the budget deficit and the supply of Treasury securities. The higher the deficit, the more Treasury notes and bonds the government must sell to finance its operation. From there it's simple supply and demand -- if demand is constant but the supply of bonds goes up, the price goes down. The same is true if the deficit falls or is eliminated altogether -- the government needs to sell fewer Treasury bonds, so the supply drops and the price of T-bonds rises. In the past few years, the budget deficit has increased dramatically, and this has put more Treasury securities into the market place.
The Federal government borrows money through the issuance of Treasury securities; so higher deficits mean a larger supply of securities and (again, assuming constant demand) lower prices. With notes and bonds, lower prices are equated with higher yields, so in this example, the government borrows money at higher interest rates. That impact ripples across all other interest rate-bearing securities and creates a higher interest-rate environment for stocks, which is bearish.
In addition to following the trend in the budget deficit or surplus, investors can gain valuable insight to the state of the economy by looking at the government's tax receipts. Higher tax receipts lead to an improved deficit situation when economic conditions

Thursday February 12th 

Retail Sales
 8:30 ET 
Consensus is -0.8%
Consensus is -0.5% (less auto)
 

Market Consensus Before Announcement
Retail sales sank again in December, putting to rest any doubt that consumers are retrenching over job losses and fears of unemployment. Overall retail sales fell 2.7 percent in December, after a 2.1 percent decline the month before. Even though the plummet was widespread, it was led by a drop in gasoline sales. Excluding motor vehicles, retail sales decreased 3.1 percent, after retreating 2.5 percent in November. But excluding motor vehicles and gasoline, retail sales, declined a less scary 1.5 percent after a 0.2 percent dip in November. Overall, nearly every major category fell in December. Looking ahead, department stores and auto dealers have been engaging in discounting to move inventories after lackluster holiday sales. We may get a boost from sales but the price cutting could also hurt the final numbers.

Retail sales Consensus Forecast for January 09: -0.8 percent
Range: -2.2 to +0.3 percent

Retail sales excluding motor vehicles Consensus Forecast for January 09: -0.5 percent
Range: -2.3 to +0.6 percent
 

Nearly 75 percent of the time, changes in monthly retail sales are between +1 percent and -1 percent. However, there are many months in which the monthly change falls outside that range. Most of the time, excessive increases or decreases are due to higher/lower spending on motor vehicle sales. Year-over-year changes in retail sales can be volatile as well, but tend to be smoother than monthly changes.

Data Source: Haver Analytics  

2009 Release Schedule

Released On: 1/14 2/12 3/12 4/14 5/13 6/11 7/14 8/13 9/15 10/14 11/16 12/11 Released For: Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

 

 

Definition

Retail sales measure the total receipts at stores that sell durable and nondurable goods. Consumer spending accounts for two-thirds of GDP and is therefore a key element in economic growth.

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.

Retail sales not only give you a sense of the big picture, but also the trends among different types of retailers. Perhaps auto sales are especially strong or apparel sales are showing exceptional weakness. These trends from the retail sales data can help you spot specific investment opportunities, without having to wait for a company's quarterly or annual report.

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

Market Consensus Before Announcement Initial jobless claims jumped 35,000 in the January 31 week to 626,000 with the prior week revised 3,000 higher to 591,000. The four-week average rose nearly 40,000 to 582,250. These readings were the highest since the early 1980s. Even so, continuing claims indicate that jobs market is in even worse shape. Continuing claims were the highest on record, up 20,000 in the January 24 week to 4.788 million. Jobless Claims Consensus Forecast for 2/7/08: 610,000 Range: 510,000 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.

 

RBC CASH Index

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 Investor's 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.

2009 Release Schedule Released On: 1/15 2/12 3/5 4/9 5/7 6/11 7/16 8/6 9/3 10/8 11/5 12/10 Released For: Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Business Inventories
10:00 ET
Consensus -0.8%

Business Inventories

Market Consensus Before Announcement

Business inventories fell 0.7 percent in November but this was a shadow of the 5.1 percent plunge in sales. October was the same story with inventories down 0.6 percent but with sales down 3.9 percent. Businesses clearly have been trying to get inventories in line but spending has been abysmal. We may actually see a rise in inventories in December because sales were so anemic as reflected in the 2.7 percent drop in retail sales for the month.

Business inventories Consensus Forecast for December 08: -0.8 percent
Range: -2.0 to 0.0 percent

Inventories tend to rise when economic conditions are strong; since sales are rising at the same time, the inventory-to-sales ratio may remain stable, or rise at a very slow pace. Inventories tend to drop when economic conditions are weak; since sales are falling at the same time, the inventory-to-sales ratio may remain relatively stable. The I-S ratio then begins to rise as sales fall more quickly than inventory growth.

Data Source: Haver Analytics  

2009 Release Schedule

Released On: 1/14 2/12 3/12 4/14 5/13 6/11 7/14 8/13 9/15 10/14 11/16 12/11 Released For: Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct

 

Definition
Business inventories are the dollar amount of inventories held by manufacturers, wholesalers, and retailers. The level of inventories in relation to sales is an important indicator of the near-term direction of production activity.

Why Do Investors Care?
Investors need to monitor the economy closely 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 that won't generate inflationary pressures.
Rising inventories can be an indication of business optimism that sales will be growing in the coming months. By looking at the ratio of inventories to sales, investors can see whether production demands will expand or contract in the near future. For example, if inventory growth lags sales growth, then manufacturers will have to boost production lest commodity shortages occur. On the other hand, if unintended inventory accumulation occurs (that is, sales do not meet expectations), then production will probably have to slow while those inventories are worked down. In this manner, the business inventory data provide a valuable forward-looking tool for tracking the economy.

 

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 13th  

 Consumer Sentiment
10:00 ET
Consensus 61.0

Market Consensus Before Announcement
The Reuter's/University of Michigan's Consumer sentiment index was little changed in January at severely depressed levels, at 61.2 and compared to a December reading of 60.1. Both the assessment of expectations and the assessment of current conditions, the two components of the headline index, were little changed. The bottom line is that consumers are extremely worried about current and near-term economic conditions - notably the job market. We need to see an improvement in consumer sentiment so consumers would be more willing to spend and boost the economy.

Consumer sentiment Consensus Forecast for preliminary February 09: 61.0
Range: 56.5 to 64.0

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: 1/16 1/30 2/13 2/27 3/13 3/27 4/17 5/1 5/15 5/29 6/12 6/26 7/10 7/24 8/14 Released For: Jan Jan Feb Feb Mar Mar Apr Apr May May Jun Jun Jul Jul Aug   Released On: 8/28 9/11 9/25 10/16 10/30 11/13 11/25 12/11 12/23             Released For: Aug Sep Sep Oct Oct Nov Nov Dec 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.

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.

 

That's it for this week,

Trade safely

 

Yours truly,

 

 

Eric LeRiche

http://www.InvestorRules.com

 

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