Investor’s first read – Brooksie’s edge before the open
Monday, April 2, 2012 9:08 a.m. ET
DJIA: 13,212.09 S&P 500: 1408.47
At some point, the Street will begin to focus more and more of how much the economic slowdown in Europe will be impacting the U.S. economy.
We all know it will, it’s a question of how much.
The current U.S. economic recovery doesn’t seem to get much respect. The fact that it has been a pained recovery doesn’t help, but look at the pit out of which it has climbed.
I suspect this recovery will be a “stop-and-go” recovery but last longer than anyone expects. Sure a European slowdown will adversely impact our economy, but so will a European recovery positively impact our economy when their cycle turns up.
The stock market is always in a discounting process, attempting to put a value on the economy’s prospects while at the same time finding a “comfort level” as it reacts to non-economic news events (international tensions, politics, fears of one thing or another).
We are on the threshold of yet another round of corporate earnings.
Last year, the BIG money used a rising stock market driven by the Street’s euphoria over good corporate earnings to sell. The S&P 500 topped out at 1307 on May 2 and dropped 18% in five months.
Worth noting in advance is that May 1 marks the end of the well-known
“Best Six Months” to own stocks cycle, * which has hosted big gains in stock prices (Nov. 2 to May 1) for decades. The period between May1 and November 1 has underperformed.
Will this happen again ?
Don’t know yet, but FACTOR IT INTO your planning. If stock prices are ripping in face of good earnings reports come May, you may want to do some profit taking at the time.
The big picture may override this seasonality.
I believe a lot of cash has been squirreled away in “safe” places (treasuries, CDs, money markets, etc.) in face of the European meltdown scare, that with those fears reduced, this money will come out and flow into the stock market.
What could delay that process could be the November elections.
TODAY: Look for a mixed open as the Street awaits a better feel for the tone of this week’s economic reports (see below). The Street is looking for reassurance that the economic recovery is not losing momentum. Absent something to worry about, we are looking at higher prices.
As it waits today, I can see stock prices drift down to the DJIA 13,148 (S&P 500:1401) area before 10 o’clock when the ISM manufacturing and Construction reports are released.
Obviously, if the economic reports released this week disappoint, we can expect a nasty spill.
Presently, we have a seven week, consolidation pattern that could support a 300-400-point
Very big week for economic reports. They must confirm that the U.S. economy continues to gain traction. No room for doubts here.
ISM Manufacturing Index (10 a.m.) a survey of 300 manufacturers covering employment, production, new orders, supplier deliveries, and inventories, slipped in February to 52.4 from 54.1. New orders slipped to 54.9 from 57.6 in January. Above 50 indicates growth
Construction Spending (10 a.m.) includes residential, non-residential and public projects. Slipped in January by 0.1% after a 1.4% increase in December and 1.9% in November.
Motor Vehicle Sales (7:45) includes domestic and foreign sales. Jumped 6.5% in February to an annual rate of 15.1 million
ICSC Goldman Store Sales (7:45) sales at 10% of major retail stores – a sampling but useful comparing one period to another.
Factory Orders (10 a.m.) January was down 1.0% after strong December and November months.
ADP Employment (8:15 a.m.) increased 215,000 in February. Is looked to as an early indication of Friday’s “Employment Situation” report.
ISM Non-Manufacturing (10 a.m.)a survey of 375 companies including agriculture, mining, construction, transportation, communications, wholesale, and retail trade. Up slioghtly in February
Jobless Claims (8:30) Dropped 5,000 for week ended March 24 to 359,000 from a revised 364,000 in the prior week. The four-week average is 365,000.
Employment Situation (8:30) Payroll employment increased 227,000 in February after a 284,000 jump in January and 223,00 jump in December.
Consumer Credit (3 p.m.) Gained $17.8 billion in January vs. a revised gain of 16.3 billion in December.
*Stock Trader’s Almanac
The writer of Investor’s first read, George Brooks, is not registered as an investment advisor. Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk.