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manufacturing

Fed To The Rescue?: 09-02-10

This past week has brought a mix of economic news, but the markets, happy to leave behind a dismal summer, took the bad ones on the chin. The strong rally that we saw yesterday was brought on by the good news on the manufacturing front: as was signaled by the ISM factory index, manufacturing in the U.S. expanded. The index itself rose to a three-month high of 56.3 (readings above 50 indicate expansion). While still positive, much of the gains stemmed from higher prices paid – a sign of inflation not growth.

Good news from Australia and China also encouraged investors to come in and buy shares. China’s purchasing managers index rose to 51.7 last month from 51.2, also signaling growth.

At the same time, the consumer slump just does not let go. Construction spending in July fell twice as much as forecast, led by a slump in homebuilding that will depress growth, Commerce Department figures showed yesterday. Consumers remain strained. The sales of both new and previously owned homes both declined to the lowest level on record in the month of July – as the demand propped up by the tax incentives ended. In the meantime, mortgage rates continue to fall. Today, Freddie Mac made it known that the average rate available for a 30-year fixed rate mortgage has declined to 4.32 percent.

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Weakening Economy vs. Big Deals: 08-19-10

Evidence of slower growth for the U.S. economy continues to mount, putting pressure on stock prices while boosting bonds. Yet the reality is that stocks are down only slightly for this week so far.Read more...

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Mid-Week Update 08-04-10

The largest US wireless carrier and Income Portfolio stalwart, Verizon Communications (VZ), has seen its shares surge since a strong earnings report a couple weeks ago. Despite facing rival AT&T (T) which is privy to an exclusive contract for Apple’s iPhone, Verizon was able to add 665,000 contract customers in the quarter, easily besting AT&T’s 496,000 new customers. The impressive sign-up numbers were largely due to a smattering of new phones offered on the network, and based on Google’s Android operating system. The new devices came from multiple manufacturers including Motorola and HTC.

Investors cheered as the strong contract numbers also translated into financial results. The company reported profits of 58 cents a share, which, while down from 63 cents in the year-earlier period, beat Wall Street consensus estimates by 2 cents per share. Company-wide revenues fell less than a percent from the year-earlier to $26.8 billion, while those stemming from the company’s wireless division rose 3.4 percent to $16 billion. This indicates that Verizon is steadily growing the wireless side of the business to replace flagging landline sales.

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What will hold back stocks 08-02-10

Short-Term Key: Neutral Long-Term Key: -18 (Neutral)

Today, it seems the world is betting on the reemergence of growth. Stock prices are rising in response to reports of higher-than-expected earnings in the manufacturing and construction industries.

However, this good news does nothing to change our long-term expectations that the market will remain in a trading range. While we can't pick a precise upside limit, we can say with confidence that stocks will not enter a full-fledged bull market. Commodity prices, which will rise along with growth, will act as a major tax on the American consumer and put the brakes on the market.

On the other hand, a bear market seems equally unlikely. A real tumble in stock prices would be a clear sign that the economy is also faltering. That would prompt the Fed to launch another huge round of monetary easing which would stop the losses.

While this trading range continues, one of the best places to make money is in commodities. So let's look at the contrasting fortunes of oil and copper.

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Market Update 07-20-10

China’s economy grew 10.3 percent (annualized) in the second quarter, down from the 11.9 percent mark in the first quarter but still, at double digits, easily at the front of the pack among major economies. China’s State Information Center reports that in the second half of the year, export growth may slow down to 16.3 percent as a result of slowdown in the global recovery. The press is reporting this as a halving of China’s export growth rate because the year-on-year improvement was 35 percent in the first six months of the year.

However, it should be noted that China’s exports improved by approximately 30 percent in the second half of 2009 compared to the first half, so the slower growth rate can partially be attributed to having a tougher comparison benchmark. To put it in a perspective, compared to the first half of this year, Chinese exports will still grow by about 12 percent sequentially even if the forecast for the slowdown in the year-over-year growth is on target, hardly a terrible figure. It’s worth reiterating that for all the talk of China slowing down, it will still remain the fastest growing major economy, and many economists think that a more moderate growth pace is better for the well-being of the country in the long run.

Indeed, with growth moderating from overheating pace, the Chinese government will find it easier to take a more supportive stance on its economy.

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Stocks waver in the summer doldrums: Market Update/Red Alert 07-12-10

Short-Term Key: Neutral Long-Term Key: -16 (Neutral)

Last week's 512 point gain on the Dow managed to wipe out the losses from the previous week, returning the market to the trading range it's been mired in since last September and assuaging fears of a bigger sell-off ... for now.

But before we breathe too big a sigh of relief, let's keep in mind that the market will probably take its short-term cue from corporate earnings, the most recent reports of which will start to come in this week. Expectations are high this time around, with most analysts predicting the S&P's overall earnings will be 33% higher than last year.

That's a pretty tough bar to hit. With many of the economic statistics still lackluster, we wouldn't be surprised if earnings fall short of expectations. If so, it means a downward bias to stock prices could emerge for the next few weeks. We don't expect a big correction, but neither do we expect a bullish leg up.

In addition, small cap stocks have begun to lag their large cap cousins.

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Market Update 07-06-10

Over the past week, weaker than expected employment and other economic data here in the U.S. has lead to significant pressure on U.S. markets. Emerging indices along with industrial metals, shaken by the decline in China’s June Service PMI that followed a slowdown in its manufacturing, were also weak last week, but rallied yesterday; altogether, they were markedly stronger than the U.S. indices, reflecting a stronger growth in the developing world.

Australia will keep its benchmark interest rate unchanged at 4.5 percent for the second straight month. With interest rates having been raised six times since last October and global economic recovery appearing to slow down, the Royal Bank of Australia noted justification for standing pat for now. The central bank also stated today that consumer spending and business investment were expanding, helping to alleviate some concerns of slowdown in the country. The Aussie dollar declined last week, also on slow-down concerns.Read more...

What Will Tomorrow Bring?: 07-01-10

The first half of 2010 is now in the history books. Unfortunately, they will record a weak stock market performance for the opening half of the year. Of course after the strong 2009 some kind of a market correction was expected at some point. This market weakness was brought on by a slew of reasons: the weaker-than-expected economic recovery here in the U.S., the fears of sputtering in the world’s growth engine China and last, but not least, the signs of the growing troubles in Europe. As such, there are significant concerns that market volatility will continue.

Today’s economic numbers didn’t do much toward calming these fears. Various data showed that manufacturing all over the world has been showing signs of slowing. The ISM manufacturing index in the U.S. declined more than forecast, to 56.2 from 59.7 in May. Chinese manufacturing slowed in June, growing less than was forecasted, while data coming from Europe indicated a slowdown in factory output.

Last weekends’ meeting of the leaders of G20 countries didn’t calm worries about the future of Europe; there are still concerns that the proposed austerity measures – and related to them budget cuts from U.K. to Ireland to Spain – will threaten the recovery. Market participants worry that the premature withdrawal of stimulus – or the unwillingness to expand them – will likely result in slower growth than was predicted.Read more...

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Mid-Week Update 06-23-10

Economic reports, especially those relating to the financial health of American citizens, have not been overwhelmingly positive lately. In fact, deflationary fears aren’t subsiding, and more quantitative easing from the Fed may be on the horizon, as evidenced by nuances in today’s statement.

The dismal consumer state makes the performance of Growth Portfolio member Apple (AAPL) all the more impressive. While most Americans are struggling to stay employed and pay their bills, Apple is struggling to keep their new offerings on the shelves. Yesterday, the company announced that they have sold 3 million iPads since their new tablet computer was released in early April. The demand has exceeded company and Wall Street expectations alike, and has strained supplies. With an iPad being purchased every two seconds, most retail outlets have resorted to customer waitlists as inventory struggles to catch up to the volume of purchases.Read more...

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Can Stocks Handle Slower Growth?: 06-17-10

The current equities rally has brought the Standard & Poor's 500 and the Dow Jones Industrial Average back to about even for the year, following May's sharp sell-off. The rebound in Europe has been even stronger. Today's comeback into positive territory, following weak economic news, is encouraging.

But the strength of U.S. government bonds and gold suggest that investor anxiety is still running high. The fragile nature of our economy and the reality of slow growth are looming ever larger.

We've heard various estimates of how many jobs have been filled because of the government stimulus programs. The average estimate is about 2.5 million jobs. Another estimate, attributed to the Congressional Budget Office, is that half of 2009's economic growth came from government stimulus.

Such numbers indicate that the economy would have been much worse without the stimulus. But recent reports also suggest that growth of jobs and the economy will slow as the impact of the stimulus wanes.

The bad news started with the surprisingly weak monthly jobs report for May, released two weeks ago. Since then, initial unemployment claims have risen to a one-month high. And home-buyer demand is softening.

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manufacturing

Fed To The Rescue?: 09-02-10

Weakening Economy vs. Big Deals: 08-19-10

Mid-Week Update 08-04-10

What will hold back stocks 08-02-10

Market Update 07-20-10

Stocks waver in the summer doldrums: Market Update/Red Alert 07-12-10

Market Update 07-06-10

What Will Tomorrow Bring?: 07-01-10

Mid-Week Update 06-23-10

Can Stocks Handle Slower Growth?: 06-17-10

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