Sunday, April 14, 2013

MONDAY SCOUTING REPORT: We May Be Witnessing Inflections In The Economy And The Markets Right Now

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Sunday, April 14, 2013

We May Be Witnessing Inflections In The Economy And The Markets Right Now

In recent years, we've seen the economy slow and the stock market turn during the spring.

Economic reports are piling up to suggest the U.S. economy is heading for yet another spring slowdown.

This week will be loaded with more economic reports and a wave of earnings announcements. Companies like General Electric, Bank of America, McDonald's, Google, and Johnson & Johnson will publish their quarterly financial results.

Everyone will be watching carefully for clues suggesting the spring slowdown is really happening. If it is happening, then we may have already seen the top form for the stock market.

Top Stories

Gold Melts Down: Friday's gold market sell-off sent the yellow metal into a bear market. The gold bulls will be looking for some price support. But for now, the gold skeptics will claim victory as the sell-off is a sign of confidence in central banks and their ability to keep inflation under control.
Spring Economic Swoon: In the last few weeks, we learned that the job market growth was slowing, consumer confidence was waning, and manufacturing was decelerating. "The disappointing retail sales numbers, combined with a downshift in job and income growth, are signs that another spring slowdown is likely to take place again this year," said Wells Fargo's John Silvia. "We continue to expect consumers to remain cautious in the months ahead as economic uncertainty reemerges."

Economic Calendar

Housing Starts (Tuesday): The U.S. housing market has been a consistent bright spot in economy. However, the March data is likely to come in a bit soft. "Starts were probably held down by the swing in the weather from atypically mild in January and February to colder-than-usual in March," said Jim O'Sullivan of High Frequency Economics. Economists are looking for 930k starts in March.
Industrial Production (Tuesday): "We expect the recovery in industrial production to continue to be a long uphill climb," said Wells Fargo's John Silvia. "Purchasing managers’ indices for March suggest manufacturing production slowed significantly, and labor market data also pointed to a slowdown in factory sector activity. Given that temperatures were likely cooler than average in March, utilities may provide a boost to Tuesday’s headline number." Economists estimate that production increased by 0.2% in March.
Federal Reserve Beige Book (March): The Fed's collection of economic anecdotes will hopefully give us some more insight into the nature of the current economic deceleration. "The last Beige Book characterized growth as "modest to moderate,"" said Jim O'Sullivan. "That description could probably be used again, even with the weakening in some of the data for March."

Market Update

The stock market closed at an all-time high on Thursday before selling off on Friday. And everyone wants to know if we've seen the top for the market.

For now, market valuations continue to appear cheap largely due to expectations for healthy earnings growth.

"The forward 12-month P/E ratio for the index current stands at 13.9, which is slightly below the 10-year average of 14.2," notes FactSet's John Butters. "With such high earnings expectations for the remainder of 2013, the market will be keenly focused during this earnings season on guidance and other comments from S&P 500 corporations pertaining to earnings projections for the rest of the year."

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