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Last week proved to be a challenging one for the stock market. All of the major indices were in the red — the S&P 500 fell 2.2% for the week, while the Dow Jones Industrial Average dropped 2.1%. Even though last week kicked off third-quarter earnings season with a trickle, economic data took a back seat to reports from Alcoa (AA), Yum! Brands (YUM), Costco (COST) and JPMorgan Chase (JPM). While all of those companies beat quarterly expectations, internal financial numbers of those reports and revised outlooks raised eyebrows.

Despite reported better-than-expected 3Q 2012 results, Alcoa cut its aluminum-demand expectations for the rest of 2012, largely due to concerns about China’s economy. Other companies cut expectations for the coming quarters. Helen of Troy (HLE), a maker of personal care products, not only missed third-quarter expectations but cited a difficult retail sales environment and lowered its 2012 outlook for the second time. Chipmaker Advanced Micro Devices (AMD) warned that its third-quarter revenue likely fell 10% sequentially, owing to weak global demand and a growing preference for tablets over personal computers. That overwhelmingly tepid news pressured the market lower last week, and raised concerns as the velocity of earnings reports jumps considerably this week.

Economic data out this morning confirmed the slowing nature of the economy as September retail sales contracted month over month and the Empire Manufacturing Index pointed to a continued contraction in October. While the general business conditions component of the Empire index increased four points month over month, it still remained in negative territory for the second consecutive month. New orders also remained in negative territory for October, which signals continued weakness ahead and likely means the shipments index will continue to weaken in the coming months. That echoes the other economic data received over the last several weeks and points to growing risk in the stock market, given the move in the S&P 500 since early June.

Sincerely,

chris

Chris Versace
Editor, PowerTrend Brief

The Week Ahead

More than 430 companies reporting their results means there will be a fair amount of information overload this week and that can make for sloppy investing. This reality, along with the smorgasbord of economic data that’s on tap for the week, will make for heavy news flow, and that’s before we factor in the second presidential debate scheduled for this Tuesday night. That’s why I try to identify in advance those companies that will offer insight into my 8 Great PowerTrends. Here’s some of what I’ll be looking at this week:

  • AMD is slated to report this week, along with both Intel (INTC) and Microsoft (MSFT). Numbers from these three PC-heavy companies should offer greater insight into the issues plaguing AMD and the PC industry generally, not to mention a glimpse as to when they expect to see it turn the corner. Also scheduled to issue their numbers this week are ASML Holdings (ASML) and Lam Research (LRCX). This should shed some light on what the weakening outlook for PCs may have on spending expectations in the semiconductor capital equipment sector.
  • Several food companies, including Domino’s Pizza (DPZ), Chipotle Mexican Grill (CMG), Pepsico (PEP) and Del Frisco’s (DFRG), are among those on tap this week. Their results and commentary will be watched to assess the impact of rising input prices on their business, as well as on consumer traffic. Aside from the quarterly metrics, investors should be listening to see if these companies will institute a new round of price increases to offset higher costs and traffic pressures.
  • The willingness of the consumer to spend will be gauged by the results of Joe’s Jeans (JOEZ), eBAy (EBAY) and ATV maker Polaris Industries (PII).
  • After Alcoa cut its aluminum forecast due to weaker-than-expected China demand, investors will be eyeing comments this week from General Electric (GE), W.W. Grainger (GWW), CSX (CSX) and Honeywell (HON) in order to better assess the situation.

Here’s a more detailed look at what data we’ll be getting this week:

Monday, Oct. 15
Retail Sales (September)
Empire Manufacturing Index (October)
Business Inventories (August)
Citigroup (C)
Gannett Co. Inc. (GCI)
Joe’s Jeans Inc. (JOEZ)
WD-40 Company (WDFC)

Tuesday, Oct. 16
Consumer Price Index (September)
Industrial Production & Capacity Utilization (September)
NAHB Housing Market Index (October)
Apollo Group (APOL)
Cree Inc. (CREE)
Del Frisco’s Restaurant Group (DFRG)
Domino’s Pizza (DPZ)
Fortinet, Inc. (FTNT)
Goldman Sachs Group (GS) -
W.W. Grainger (GWW)
Intel Corp. (INTC)
Intuitive Surgical (ISRG)
Johnson & Johnson (JNJ)
The Coca-Cola Company (KO)
Mattel Inc. (MAT)
PNC Financial Services (PNC)
Sonic Corp. (SONC)

Wednesday, Oct. 17
MBA Mortgage Index (Weekly)
Housing Starts & Building Permits (September)
Abbott Labs (ABT)
ASML Holdings (ASML)
American Express (AXP)
Badger Meter (BMI)
Check Point Software (CHKP)
CSX Corp. (CSX)
eBay Inc. (EBAY)
Lam Research (LRCX)
Mellanox Technologies (MLNX)
PepsiCo Inc. (PEP)
Piper Jaffray Corp. (PJC)
Stanley Works (SWK)
Skyworks Solutions (SWKS)
Textron Inc. (TXT)

Thursday, Oct. 18
Initial & Continuing Jobless Claims (Weekly)
Philadelphia Fed Index (October)
Leading Indicators (September)
Acacia Research (ACTG)
Advanced Micro Devices (AD)
Briggs& Stratton (BGG)
Cubist Pharmaceuticals (CBST)
Chipotle Mexican Grill (CMG)
Cypress Semiconductor (CY)
Danaher Corp. (DHR)
E*Trade Financial (ETFC)
Ethan Allen Interiors (ETH)
GATX Corp. (GMT)
Google Inc. (GOOG)
Morgan Stanley Co. (MS)
Microsoft Corp. (MSFT)
Nokia Corp. (NOK)
Polaris Industries (PII)
Philip Morris International (PMI)
PPG Industries (PPG)
Snap-On Inc. (SNA)
USG Corp. (USG)

Friday, Oct. 19
Existing Home Sales (September)
Air Products & Chemicals (APD)
Baker Hughes Inc. (BHI)
General Electric Co. (GE)
Honeywell International (HON)
Ingersoll-Rand Co. (IR)
Kansas City Southern (KSU)
Parker Hannifin Corp. (PH)
Schlumberger Ltd (SLB)
Sensient Technologies (SXT)
Valmont Industries (VMI)