U.S. Economy Not Yet Reflecting Weakness Abroad

September Retail Sales, the Empire State Manufacturing Survey, Industrial Production, and the Housing Market Index numbers came in this week above projections. Housing Starts soared 15% in September and Business Inventories are lower relative to sales, a good omen for manufacturing.

The only bummer so far is today’s Jobless Claims for the week ending October 13 which were up 46,000 to 388,000 bumping the 4-week average up 750 to365,000. As noted last week when the claims were down 30,000, that drop was suspect due to either seasonal adjustments or numbers for one or more states not included in the data.

One has only to look at the revision of data for prior weeks or months to understand that reported numbers can be incomplete. Any number that deviates a lot from the norm, is suspect and I think that is how the Street saw last week’s claims. Both the Philly Fed Manufacturing Survey and Leading (economic) Indicators report due at 10’oclock are expected to be positive.

All things considered, this is not an economy that is heading into recession. That said, these indicators do not fully reflect the weakening of key economies abroad.

Investor’s first read – an edge before the market opens
DJIA: 13,557.60
S&P 500: 1460.91
Nasdaq Comp.: 3104.12
Russell 2000: 842.52
(Thursday, October 18, 2012 (9:09 a.m.)

Q3 EARNINGS:
So far, corporate earnings for Q3 are coming in a bit better than expected with 76 of the S&P 500 companies beating estimates, 18 falling short.

FISCAL CLIFF:
Uncertainty over the horrors of a plunge over the fiscal cliff will turn to outright fear when headlines on the adverse impact of billions in automatic spending cuts and tax increases replace the debates on Page One. How it is dealt with depends on who wins the presidency. Continued obstruction by Congress is not an option this time. Its inability (or unwillingness) to make the hard choices has already skewered our economic recovery and to a lesser extent those abroad. Regardless of party affiliation, the BIG money has too much to lose by more partisan jousting.

Next year is a “post-presidential” election yea, when parties in power tend to address the tough, contentious issues, clearing the way for the mid-term elections, more importantly the two years leading up to the next presidential election.*

CONCLUSION:

Three things are driving stock prices:
-Growing suspicion that corporate earnings won’t be as bad as expected and may even be surprisingly good.
-Increasing evidence that the economy is NOT tanking and may be picking up.
-The stock market has crossed the threshold of the “Best Six Months” for owning stocks (November 1 to May 1). This six month period has outperformed the six months (May 1 to October 31) by a wide margin for decades.*
The housing market is clearly improving. It led the plunge into the Great Recession/Bear Market in 2007 – 2009. The home is the biggest single investment most people take on in life. When house prices nose dived during the Great Recession, so did the “wealth effect,” one’s perception of their net worth. That adversely impacted the economy – people felt poorer or outright poor and slashed spending.

TODAY:
Mixed open. So far correction in the market have failed to gain traction, suggesting money managers are buying on pullbacks, however slight, Support Starts at DJIA 13,445 (S&P 500: 1446). A one-day reversal today where the market averages regain all of the loss posted intraday, would be particularly bullish.

FACEBOOK (FB – $19.88):
Today: NO CHANGE ! FB is trying to stabilize above $19.50. Stock has attracted some buying, but buyers must get more aggressive to turn it up here. A move above$20 on increased volume was needed. I don’t own, nor have I ever owned FB. Generally, I don’t recommend or comment on individual stocks. I started covering FB technically after its IPO because on May 21, I felt at $34 it was very vulnerable in face of all the misunderstanding and hype. I warned of a drop to $24-26, which it did shortly thereafter. Following a rally back into the 30s, FB dropped into the low 20s where on August 2, I forecast a low of $16.88. On September 4, it hit $17.55, its low since its IPO at $38.

George Brooks
*Stock Trader’s Almanac: This is a “must own” publication, loaded with daily, weekly, monthly savvy. It is “the source” for strategies, seasonalities, recurring events, useful stats. Published annually, I have used it every year since 1968. Nothing compares !
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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.