It's Going To Be A Busy Week For The US Economy

The stock market is coming off of a rare down week, with the S&P 500 falling 2.1% by Friday's close.

Meanwhile, the latest reports continue to suggest that the U.S. is heading for a spring swoon. As such, everyone will be looking for clues of a pick-up or slowdown in economic activity.

Indeed, this week will be busy with economic data, and major companies like Caterpillar, Apple, Boeing, Starbucks, and ExxonMobil all announce their Q1 financial results.

Top Stories

Deflation - The inflation hawks have been silenced as commodities prices tumbled. "The CRB Index has fallen nearly 9% over the past three months," noted Marc Chandler of Brown Brothers.

Sure, inflation doesn't appear to be a near-term threat. But falling prices could be a sign of bad news. "Commodity markets are certainly turning in to the new radio wave of slower global economic growth as they have not done since the start of the Great Recession in 2007-2008," said Wells Fargo's John Silvia.
Exogenous Shocks - The horrific bombing at the Boston Marathon, the tragic explosion at the West Fertilizer plant in Texas, and the devastating earthquake in Sichuan, China last week are just a few reminders that we can be blindsided by any number of exogenous shocks. Some can be caused by accidents, some can be caused by mother nature, and some can be caused by pure evil. In addition to having a sad human toll, these events usually come with unfavorable impacts on the financial markets and the economy.

Economic Calendar

Existing Home Sales (Monday) and New Home Sales (Tuesday): Economists estimate that existing home sales climbed by 0.4% in March. "Some of the surge in the condo/co-op component in February was probably reversed in March," said High Frequency Economics' Jim O'Sullivan who is expecting a decline.

New Home sales are expected to climb 1.9%. "The drop in sales in February was probably at least partly reversed," said O'Sullivan.
Durable Goods Orders (Wednesday): Economists estimate a 2.9% drop in March orders. "Our expectation is that the stronger headline reading from February will be reversed," said Wells Fargo's John Silvia. "Durable orders likely fell 1.8 percent in March as the volatile swings in aircraft and defense orders continue. Excluding transportation orders, we expect new orders to increase 0.2 percent for the month."

"Through the rest of this year, we expect business fixed investment to slowly pick up and, thus, core capital goods orders should return to a more robust pace of growth as the year progresses."
Q1 GDP (Friday): Economists estimate that GDP grew at a 3.1% rate during the first three months of the year. "Consumer spending appears to have accelerated in Q1, despite concerns of drag from higher payroll taxes and higher tax rates on upper income individuals," said UBS's Kevin Cummins. "Net export appear to have shaved about 0.4 percentage points from growth, as some of the pickup in consumer spending likely boosted imports. Federal spending appears to have rebounded after plunging in Q4. But business investment probably softened."

Market Update

"Of the 102 companies that have reported earnings to dat for Q1 2013, 72% have reported earnings above the mean estimate and 45% have reported revenues above the mean estimate," said FactSet's John Butters.

Despite the beats, growth is expected to be just above breakeven. And this is as corporate profit margins sit at record highs. This is a combination that has market skeptics like John Hussman concerned.

"This fragile equilibrium that we're in because of monetary policy, because of fiscal policy, and because of the combination of yield-seeking plus the apperence of yield through forward operating earnings because profit margins are elevated -- this creates an environment where stock returns prospectively are very low," he argued in a recent presentation.

Hussman sees 3.5% average annual returns in the stock market over the next ten years.

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