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"The
Stock Market Pulse"
$49.95/month value
September 29th,
2008 Edition
Weekly review of
the markets
Last week, we
were right to not venture and try to predict what was going to happen… The
big rescue plan by the government was very well received and we gad two huge
consecutive rallies. The weekend offered some time to think about it and it
became evident that it wouldn’t be so easy and, to top it all off, both
political parties disagree with different aspects of the plan, which
contributed to weakening the already weak dollar resuscitating the
speculations on commodities. Oil price shot up.
Monday brought
everybody back to earth as we realize that the economy remains weak and even
if the plan is accepted, implemented and saves us from the unthinkable, the
repercussion of the confidence crisis, the low investment and financing
capacities are only starting to occur. In other words, the disease is just
starting to spread from Wall Street to Main Street…
We easily lost all the gains from the two earlier rallies
Tuesday Mr. Bernanke
stated that the American Congress had to intervene promptly and aggressively
and otherwise the consequence on the whole financial system. The Banking
Committee expressed numerous reserves about the plan which lead many top believe
the plan could be diluted and could take some time to come to fruition. This
uncertainty caused a negative for second consecutive day.
Wednesday
saw Warren Buffet chip in with a
5B$ participation in Goldman’s Sachs through Berkshire
Hathaway. This should have helped the market but it didn’t. We waited all day
hoping to hear that the rescue plan was accepted but when it became clear it
wouldn’t happen that day the markets plunged to the low of the day to finish
at the opening level.
Thursday
it seemed we were on the verge of seeing the rescue plan adopted which
contributed to ignoring the poor economic data just released, i.e. Durable
good orders came out much worst than anticipated at –4.5% vs. -1.6% and the Jobless claims came
in at 493K which represented an increase of 32K and new home sales dropped
11.5% in August. When it became evident once more that the plan wouldn’t be
accepted the on that day we lost half the gains we managed to make in the
morning.
Friday
we were a lot less optimistic. Washington Mutual went under ( biggest bankruptcy in American History) and was absorbed
by JP Morgan. Bush admitted that the plan was blocked on the ideology
grounds. The markets opened sharply
lower but gained back dome ground in the first part of the day, slowed down
mid day and continued its rally until the bell ended the trading day even
though no signs of a positive outcome regarding the implementation of the
rescue plan. Either some people have information the market doesn’t have or
people thought the weekend would see a happy conclusion of the negotiations…
By the way, Washington Mutual, whom declared bankruptcy that day, had fired
its CEO 3 weeks earlier. This CEO had this job for only 21 days before
getting fired but believe it or not,
it is said that the was guaranteed a
whopping pay out of 18Million dollars for his hard labor!!! No wonder the
negotiations are so tough!
This Week, as
expected the last week was unpredictable. We spent most of the week
speculating on when the rescue plan would get adopted. Economy and politics
are also mixing right now which is only adding to the uncertainty. The week
ended on a burst of speculation since people don’t want to be left behind
when the market inevitably bounces once the plan is adopted. This week is
filled with important economic news, with expectations that the NAPM-Chicago
and consumer confidence will come in lower and we expect a slight increase on
the ISM manufacturing Index. Hang on to your hats because I suspect one way
or the other we will see a major move this week…
Technically, it’s still futile to try and predict what
will happen using charts so I’ll leave it at that
for now.
Economic calendar
(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/gold-membership.html
Monday
September 29th
Personal
Income and Outlays
08:30 ET
Personal Income –M/M change consensus
0.2%
Consumer Spending – M/M change consensus 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.
Farm Prices
03:00 ET
Definition
The Department of Agriculture releases the index of prices received by farmers
at the end of the month for the current month. It reflects changes through
the middle of the month. The index is not adjusted for seasonal variation. It
includes crop prices and livestock & product prices. Analysts monitor
farm prices in order to see early warnings of inflation or deflationary
pressures in the economy.
Why Do Investors
Care?
Farm prices are a leading indicator of food price changes in the producer and
consumer price indices. There is not a one-to-one correlation, but general
trends move in tandem.
Investors need to monitor inflation closely. An individual investor who
understands the process of inflation and how inflation influences the markets
will no doubt benefit over those investors that don't understand the
consequences of inflation.
Inflation is an increase in the overall prices of goods and services. The
relationship between inflation and interest rates is the key to understanding
how data such as farm prices influence the markets - and your investments.
If someone borrows $100 dollars from you today and promises to repay it in
one year with interest, how much interest should you charge? The answer
depends largely on inflation, because you know that the $100 won't be able to
buy the same amount of goods and services a year from now, as it does today.
If you were in a country where prices doubled every couple of months, you
might want to charge 400% interest for a total payoff of $500 at the end of
the year. In the United States,
farm prices tells us that food prices were falling
through the summer of 2005. This represents only one sector of the economy
though. At the same time, the CPI was rising 3 to 3.5 percent during this
period. You might want to add in one or two percentage points to cover
default risk and the opportunity cost, but inflation remains the key variable
in what interest rate you would charge.
Inflation (along with default risk and opportunity cost) basically explains
how interest rates are set on everything from your mortgage and auto loans to
Treasury bills, notes and bonds. As the rate of inflation changes and as
expectations on inflation change, the markets adjust interest rates
accordingly. The effect ripples across stocks, bonds, commodities, and your
portfolio, often in a dramatic fashion.
By tracking the trends in inflation, whether high or low, rising or falling,
investors can anticipate how different types of investments will perform.
Tuesday
September 30th
ICSC-UBS
Store Sales
07:45ET
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-UBS 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.
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.
NAPM-Chicago
09:45ET
Consensus 53.0
Definition
The National Association of Purchasing Management - Chicago
compiles a survey and a composite diffusion index of business conditions in
the Chicago area. Manufacturing
and non-manufacturing firms are both surveyed, but until recently, market
players have believed that the survey primarily covers the manufacturing
sector. Readings above 50 percent
indicate an expanding business sector. The NAPM - Chicago
is considered a leading indicator of the ISM manufacturing index.
Why Do Investors Care?
Investors should track economic data like the NAPM -
Chicago to understand the economic backdrop for the various markets. The
stock market likes to see healthy economic growth because that translates to
higher corporate profits. The bond market prefers a moderate growth
environment that won't generate inflationary pressures.
The NAPM - Chicago gives a
detailed look at the Chicago
region's manufacturing and non-manufacturing sectors. Many market players
don't realize that non-manufacturing activity is covered in this index and
tend to focus on the manufacturing side only. Consequently, market players
consider this as a leading indicator for the ISM manufacturing survey. On its
own, it can be viewed as a regional indicator of general business activity.
Some of the NAPM - Chicago's
sub-indexes also provide insight on commodity prices and other clues on
inflation. The Federal Reserve closely watches this report because in its
long history, it has proven to be a good indicator of business activity as
well as inflation. As a result, the financial markets can be highly sensitive
to this report.
Consumer Confidence
10:00ET
Consensus 55.0
Definition
The Conference Board compiles a survey of consumer attitudes on present
economic conditions and expectations of future conditions. Five thousand
consumers across the country are surveyed each month. While the level of
consumer confidence is associated with consumer spending, the two do not move
in tandem each and every month.
Why Do Investors
Care?
The pattern in consumer attitudes and spending is often the foremost
influence on stock and bond markets. For stocks, strong economic growth
translates to healthy corporate profits and higher stock prices. For bonds,
the focus is whether economic growth goes overboard and leads to inflation.
Ideally, the economy walks that fine line between strong growth and excessive
(inflationary) growth. This balance was achieved through much of the
nineties. For this reason alone, investors in the stock and bond markets
enjoyed huge gains during the bull market of the 1990s. Consumer confidence
did shift down in tandem with the equity market between 2000 and 2002 and
then recovered in 2003 and 2004. Consumers became more pessimistic in 2005
when gasoline prices surged.
Consumer spending accounts for more than two-thirds of the economy, so the
markets are always dying to know what consumers are up to and how they might
behave in the near future. The more confident consumers are about the economy
and their own personal finances, the more likely they are to spend. With this
in mind, it's easy to see how this index of consumer attitudes gives insight
to the direction of the economy. Just note that changes in consumer
confidence and retail sales don't move in tandem month by month.
Wednesday October 01th
Motor
Vehicle Sales
Consensus : 10.08M
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.
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.
Construction Spending
10:00 AM
Consensus is -0.5%
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.
ISM Mfg Index
10 :00 ET
Consensus 49.5
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.
Existing
Home Sales
10:00 ET
Consensus 4.92M
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.
EIA
Petroleum Status Report
10:35 ET
Definition
The Energy Information
Administration (EIA) provides weekly information on petroleum inventories in
the U.S., whether produced here or abroad. The level of inventories helps
determine prices for petroleum products.
Why Do Investors Care?
Petroleum product prices are
determined by supply and demand - just like any other good and service.
During periods of strong economic growth, one would expect demand to be
robust. If inventories are low, this will lead to increases in crude oil
prices - or price increases for a wide variety of petroleum products such as
gasoline or heating oil. If inventories are high and rising in a period of
strong demand, prices may not need to increase at all, or as much. During a
period of sluggish economic activity, demand for crude oil may not be as
strong. If inventories are rising, this may push down oil prices.
Crude oil is an important commodity in the global market. Prices fluctuate
depending on supply and demand conditions in the world. Since oil is such an
important part of the economy, it can also help determine the direction of
inflation. In the U.S. consumer prices have moderated whenever oil prices
have fallen, but have accelerated when oil prices have risen.
Thursday October 02nd
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.
ECB Announcement
07:45ET
Definition
The European Central Bank Governing Council consists of 18 members. The
Committee meets twice a month. The first monthly meeting of the month is
devoted to monetary policy. Changes in monetary policy if any are announced
immediately after the meetings. A press conference is held about 45 minutes
after the meeting ends. A statement is read concerning their action -- or
lack of it -- followed by a question and answer period. The ECB does not
publish any minutes for its meetings.
Why Do Investors
Care?
The European Central Bank determines interest rate policy at their Governing
Council meetings. The Council is composed of the six members of the Executive
Council and 12 presidents of member central banks (Bank of France, Bundesbank, etc). The Governing Council meets twice
monthly (usually the first and third Thursdays of the month). Monetary policy
issues are generally discussed only at the first meeting of the month. The
European Central Bank has an established inflation ceiling of 2 percent. The ECB's measure of inflation is the harmonized index of
consumer prices (HICP). Decisions are reached by consensus. No vote is taken.
As in the United States,
European market participants speculate about the possibility of an interest
rate change at these meetings. If the outcome is different from expectations,
the impact on European markets can be dramatic and far-reaching. The interest
rates set by the ECB serves as a benchmark for all other rates in the eurozone.
The level of interest rates affects the economy. Higher interest rates tend
to slow economic activity; lower interest rates stimulate economic activity.
Either way, interest rates influence the sales environment. In the consumer
sector, few homes or cars will be purchased when interest rates rise.
Furthermore, interest rate costs are a significant factor for many
businesses, particularly for companies with high debt loads or who have to finance
high inventory levels. This interest cost has a direct impact on corporate
profits. The bottom line is that higher interest rates are bearish for the
stock market, while lower interest rates are bullish
Jobless
Claims
08:30ET
Consensus 475K
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.
Factory Orders
10:00 ET
Consensus -2.5%
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
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 October 3rd
Employment Situation
08:30 ET
Consensus NonFarm Payroll -100000
Consensus Average Hourly Earnings 0.3%
Consensus Unemployment Rate – Level 6.1%
Consensus Average Workweek – Level 33.7hrs
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.
ISM Non-Mfg
Survey
10:00ET
Consensus: 50.0
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.
That's it for the economic calendar this week and for this
outlook on what we can expect in the markets this week so use it wisely, and
prosper… :-)
Yours truly,
Eric LeRiche
www.InvestorRules.com
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