The Stock Market Pulse

($49.95/month value)

Week of March 23th, 2009

 

Weekly review of the markets

 

Last week, finished with 4 consecutive "up days" but Friday finished on a candle which was potentially forecasting a reversal.

Monday, we have to remind ourselves that were going to open 40% higher then last weeks bottom. Industrial production came out as planned and the market didn't move much, most of the day, until investors decided to take some profits.

Tuesday, the PPI came out weaker then expected but this indicator is not as important at these levels anyways since it's got more "pull" when it falls below zero. After a weak opening, the financial sector recovered nicely and brought along the rest of the market. As you know, the market tends to react before the economy clearly shows it's face so the question is: is it trying to tell us something?

Wednesday, on this FOMC day, investor had to stay put and wait for the decision to come so earlier in the day a lot of them took their profits and sat on the sidelines. Finally the FED announced it wouldn't touch interest rates but said they would print $1T to buy back some bad debts and the likes to "lighten the load" and hopefully, allow banks to reduce their interest rates... The problem with this is that when you start printing money you increase the inflation risk and alothough it's not a problem now, once it satrts occurring, it could be very difficult to stop so keep this in mind for your long term interest rate negotiations... Investors obviously liked that news and propel the market to new highs giving the markets a 7th "up day" in the last 8!

 

Thursday jobless claims continued to rise which is not sharing the current optimism the markets are showing and although we started higher following two "surprised" good days, it was to much to ask to expect a third positive day and the profit takers took over and brought the market down.

Friday, no important news were on tap but Mr Bernanke was talking at 12 noon. He said he was "encouraged" by the new measures. The market didn't share is optimism and took some more profits taking the markets down again.

This Week we managed to close in positive territory even though not much was supporting such optimism. The FED is so concerned that it even strated priting money! They are clearly going "all in" to stop the bleeding. It remains a risky strategy in the long run but it the short term it's what they believe is warranted. Time will tell... In the mean time, it allows us to support the continuing downpour of bad news. Next week is on the light side in terms of economic news and the only one that could have a significant impact is the final GDP number which although already "old" could cause some surprises...

Technically, we clearly bounced off the resistance levels after a positive bounce off support levels. Here I will use the Fibonacci indicator to explain these "bounces".

 

The SnP and the dow turned at a natural level combined to the Fibonacci 50% level as shown using the S&P500 chart:

 

 

The Nazdaq was not so clear but still, we can see the Fib levels here: The next movement will be indicative...

 

*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 March 23rd

 

Existing Home Sales
8:30 ET
Consensus 4.50M
 
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.

Market Consensus Before Announcement
Existing home sales posted a 5.3 percent drop in January to a 4.490 million annual unit rate. January's pace was a record low for this series going back to January 1999. Supply on the market remains extremely elevated at 9.6 months compared to 9.4 months in December. Weakness in sales is carrying over to prices as the median price of an existing home fell 3.1 percent in January to $170,300 for a 14.8 percent year-on-year decline. Whether sales are at bottom yet, the early indications are mixed. The Mortgage Bankers Association recently reported a rise in mortgage applications. But the pending home sales index fell a sharp 7.7 percent in January pointing to weak home sales data for February and March.
  

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: 1/26 2/25 3/23 4/23 5/27 6/23 7/23 8/21 9/24 10/23 11/23 12/22 Released For: Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

 

Tuesday March 24th

SPEECHES

6:00AM

Description

Chicago Federal Reserve Bank President Charles Evans participates in panel discussion on "Central Banking in Times of Crisis Active Player or Passive Observer?" at the Czech National Bank's European Banking and Financial Forum in Prague.

 

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.

SPEECHES

6AM

Description Chicago Federal Reserve Bank President Charles Evans participates in panel discussion on "Central Banking in Times of Crisis Active Player or Passive Observer?" at the Czech National Bank's European Banking and Financial Forum in Prague.

 

 

Redbook
10:00 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, it was widely watched in the aftermath of Hurricanes Katrina and Rita which hit New Orleans and the Gulf Coast in 2005.

 

State Street Investor Confidence Index
08:30ET

Definition
The State Street Investor Confidence Index measures confidence by looking at actual levels of risk in investment portfolios. This is not an attitude survey. This index is current since it uses data collected at the close of the previous Wednesday and is reported on the second to last Tuesday of each month

Why Do Investors Care?
Conventional wisdom suggests investors are confident when stocks are rising and pessimistic when falling. But in fact, the State Street group notes prices tend to be higher when economic fundamentals are strong; i.e., when economic indicators are growing at a healthy clip. But a good investor confidence measure "should indicate whether, for a given set of fundamentals, investors are bullish or bearish on risky assets."

State Street believes direct measurement, rather than a survey of portfolio managers who often don't have time to fill out monthly questionnaires, is a more reliable approach to consumer confidence. The investor confidence index is compiled with techniques based on modern portfolio theory. According to State Street, "the more of their portfolios that professional investors are willing to devote to riskier as opposed to safer investments, the greater their risk appetite or confidence." So when investors choose to increase their holdings of risky assets, this confirms their confidence has increased. Incidentally, State Street believes investor confidence can exist in a bear market as well as a bull market.

Since market players have become so enamored with consumer attitude surveys, it probably would be useful for both professional portfolio managers and amateur investors to consider investor attitudes.

 

Wednesday March 25th    

 

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.

Durable Goods Orders
10:00 ET
Consensus -2.0%

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.

Market Consensus Before Announcement
Durable goods orders in January plunged 4.5 percent (revised), following a 4.6 percent drop in December. Excluding the transportation component, new orders declined 3.0 percent, after dropping 5.7 percent in December. By industry group, the largest decline was in transportation, led by a fall in defense aircraft orders along with a decline in motor vehicles. Early indications for March are not good. For both the Philly and New York Fed manufacturing reports, the new orders index fell in both February and March. Both surveys have data for a given reference month that overlaps two actual months (the March report includes data from both late February and early March).
 

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: 1/29 2/26 3/25 4/24 5/28 6/24 7/29 8/26 9/25 10/28 11/25 12/24 Released For: Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

 

New Home Sales
08:30ET
Consensus 315K

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.

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 new home sales, 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 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.

Market Consensus Before Announcement
New home sales in January plunged a monthly 10.2 percent to a record low pace of 309,000 annualized units sold. Prices for new homes also continued to decline under the weight of excess supply and little traffic. The median price for a new home fell a very steep 9.9 percent in January to $201,100, pulling down the year-on-year rate to minus 13.5 percent. The supply of new homes on the market jumped to 13.3 months from 12.2 months in December. Looking ahead, lower mortgage rates may help slow the fall in sales. But homebuyer traffic in January and February was very low, according to the National Association of Homebuilders.

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

 

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.

 

SPEECHES

12:20

Description
Cleveland Federal Reserve Bank Sandra Pianalto delivers speech on forces for economic recovery Regional Growth Partnership luncheon in Maumee, Ohio. Audience Q&A expected.

 

SPEECHES

13:00

Description
San Francisco Federal Reserve Bank Janet Yellen gives speech to the Forecasters Club of New York on the U.S. economic situation and policy responses in New York. Audience and media Q&A to follow.

 

Thursday March 26th

SPEECHES

5AM

Description
Atlanta Federal Reserve Bank Dennis P. Lockhart makes remarks on panel on Food, Water, Inflation and Monetary Policy at the Global Interdependence Center's Conference on Food and Water: Basic Challenges to International Stability at the Bank of France in Paris.

 

Gross Domestic Product (final)
08:30 ET 
Real GDP-Q/Q change- SAAR -6.6%
GDP price index -Q/Q change- SAAR 0.5%

 

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.

Market Consensus Before Announcement
GDP growth was revised down significantly at the end of February with the Commerce Department's first revision to fourth quarter GDP. Growth was revised to a 6.2 percent decline from the initial estimate of a 3.8 percent drop. The downward revision was primarily due to a sharply lower estimate for inventories and for exports. Turning to inflation, the GDP price index was revised up to plus 0.5 percent annualized from the initial estimate of a 0.1 percent dip.

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  

2009 Release Schedule

Released On: 1/30 2/27 3/26 4/29 5/29 6/25 7/31 8/27 9/30 10/29 11/24 12/22 Released For: Q4:08 Q4:08 Q4:08 Q1:09 Q1:09 Q1:09 Q2:09 Q2:09 Q2:09 Q3:09 Q3:09 Q3:09   A: Advance P: Preliminary F: Final

 

Jobless Claims
08:30ET ET
Consensus 650K

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.

Market Consensus Before Announcement
Initial jobless claims slipped in the latest week but that was not the big story. Continuing jobless claims for the March 7 week rose a very steep 185,000 to a record 5.473 million. The worsening recession is making it harder for the jobless to find new work. Initial claims for the March 14 week did fall back 12,000 but remained at a very high 646,000 for a four-week average of 654,750. Lackluster demand in the economy is likely to result in rising layoffs for some time.

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  

 

Business Inventories
10:00 ET
Consensus -1.0%

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.
Market Consensus Before Announcement

Business inventories fell 1.3 percent in December but that was more than offset by a 3.2 percent plunge in business sales. In turn, the stock-to-sales ratio jumped 3 tenths to 1.44. Businesses have been trying to keep inventories in line but sales weakness has stayed one step ahead. But just maybe, that will change in January with the 1.0 percent jump in retail sales.

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

 Corporate Profits
10:00 ET
Consensus 56.9

Definition
Corporate profits, as reported by the Bureau of Economic Analysis (BEA), are summarized briefly as the income of organizations treated as corporations in the national income and product accounts. The BEA reports several measures of profits.

Profits from current production (corporate profits with inventory valuation and capital consumption adjustment), are also known as operating or "economic" profits. Capital consumption adjustment deals with the differences in depreciation allowances used for accounting and income tax purposes. Inventory valuation adjustment (IVA) deals with the difference in measuring the cost of inventory replacement.

Book profits amount to operating profits subtracting out inventory valuation and capital consumption adjustments.

After tax profits are book profits after taxes are subtracted. The Econoday reports will focus on after tax profits reported by the BEA, since these are the most relevant.
The corporate profit figures that are derived from the national income and product accounts (NIPA) depend on GDP growth. They don't always move in the same direction or the same magnitude as the profit data reported directly by individual companies or even the S&P 500.

Why Do Investors Care?
Corporate profits are the lifeblood of investment spending. Profits are the income of a corporation. When profits are strong, then companies will be able to increase their capital spending. This could allow better growth prospects for a company and is likely to increase its underlying value. When corporate profits decline, then capital spending tends to decline. Without the potential for growth, a company could be at a disadvantage, particularly in our global economic environment.

Corporate profits also reveal the health of an organization. When a company's profits are anemic during economic expansion, it suggests that the company is not performing efficiently. The value of an inefficient company is determined by its stock price. Thus weak profits signal lower stock prices. When a company's profits are relatively strong, even during an economic downturn, it usually means that the organization is well-managed. The higher value for this type of company is reflected in a higher stock price.

SPEECHES

10:00AM

Description
Treasury Secretary Timothy Geithner testifies on financial regulation reform before House Financial Services Committee in Washington.

 

EIA Natural Gas Report (Pay attention to this one)

10:30 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 International Trade
08:30ET ET
Consensus -38.1B

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 c

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 March 27th 

Personal Income and Outlays  ( market moving indicator)
08:30ET
Consensus:
Personal Income -  M/M change -0.2%
Consumer Spending - M/M change 0.3%
Core PCE Price index - M/M change 0.2%

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.

Market Consensus Before Announcement
Personal income in January rose 0.4 percent, following a 0.2 percent decline in December. But special factors, including January pay raises for federal civilian and military personnel, boosted personal income. Excluding special factors, personal income rose 0.2 percent in January. The important wages and salaries component actually declined 0.2 percent after a 0.4 percent fall in December. Consumer spending rebounded 0.6 percent in January after a 1.0 percent drop the previous month.

The headline PCE price index rose 0.2 percent in January while the core index edged up only 0.1 percent. Looking ahead, personal income for February is likely to be negative, coming off the special factors for January and reflecting further job losses. Outside of durables, spending should be up. Retail sales excluding autos and gasoline were up in February. But unit new motor vehicle sales slid further in the month. PCE price inflation is likely to firm given that the headline CPI jumped 0.4 percent for February while the core CPI edged up to 0.2 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

 

Consumer Sentiment
10:00 ET
Consensus 56.7

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.

Market Consensus Before Announcement
The Reuter's/University of Michigan's Consumer sentiment index edged 3 tenths higher in mid-March to a still severely low level of 56.6. But expectations, the report's leading component, did rise 2-1/2 points to 53.0 -- indicating that pessimism isn't getting worse and perhaps hinting that it may now be slowly receding. On the downside, though, the current conditions component fell more than 3 points to 62.3, a reflection of ongoing and very severe contraction in the labor market. Looking ahead, the current conditions component is likely to remain low due to lagging weakness in labor markets. However, improvement in the expectations component likely is going to depend on how well the cheer leading is going from the Fed, the Treasury, and President Obama.

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

That's it for this week,

Trade safely

 

Yours truly,

 

 

Eric LeRiche

http://www.InvestorRules.com

 

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