Where Do We Go From Here?
Monday, April 1, 2013
Note: Let me thank Mark Vickery at the outset for ably holding the fort in my absence last week.
The second quarter gets underway today after the first quarter’s impressive start to the year that pushed stocks into new all-time high territory. Hard to envision the market sustaining the first quarter’s strong start in the current and coming quarters, though there is no shortage of proponents on both sides of the argument.
Market bulls contend that fundamentals in terms of earnings and valuation look better now than was the case at the time of the 2007 peak, while bears find the earnings and economic growth data to be generally underwhelming. This debate will likely go on for a while, though economic data on tap this week and earnings reports from next week onwards will provide support to both sides.
The key report in today’s session is the manufacturing ISM report coming out a little later, though European markets are closed today and overnight trading out of Asia was on the weak side following an underwhelming business confidence survey out of Japan and Chinese PMI data that was positive, but a shade lighter than expected. Regional manufacturing surveys in the U.S. have been mixed and today’s ISM survey is expected to show a modest pullback from February levels, but it will nevertheless be consistent with an expanding factory sector. And that will be the key takeaway from today’s ISM reading.
The employment component of the ISM index will be particularly informative given the March non-farm payroll report coming out this Friday. Weekly Jobless Claims data has been moving in the ‘wrong’ direction over the last two weeks, but the overall level of initial claims still remains consistent with strong labor market gains this week. The expectation is for ‘headline’ job gains of about 200K in March in Friday’s report, which will follow the strong 236K reading in February. The unemployment rate is expected to remain unchanged at 7.7%. Labor market gains are necessary to sustain the momentum in consumer spending, which has remained fairly resilient despite headwinds in the shape of higher payroll taxes and gasoline prices.
Sheraz Mian
Director of Research
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