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Earnings season is normally a busy period, but the current one is likely filling at least some investors with stress as a greater percentage of companies than usual have missed expectations and revised outlooks downward. Of the more than 1,200 companies that shared quarterly results last week, noteworthy announcements that weighed on the market were had from Caterpillar (CAT), 3M (MMM), Netflix (NFLX), Deckers (DEC), VeriSign (VRSN) and Apple (AAPL). There were a number of positive announcements from Facebook (FB), which appears to be getting its mobile house in order; Broadcom (BRCM), which is benefitting from one aspect of my Always On, Always Connected PowerTrend – the increasing shift toward mobility and away from desktop computing; and Coach (COH) among others.

Although the volume in last week’s economic data was light in comparison to recent weeks, we did receive the latest durable orders report, as well as the initial gross domestic product (GDP) reading for 3Q 2012. Much like last week’s durable order data for September, once we strip out the upside surprise in government/defense spending, the September quarter GDP figure was far less robust — coming in more like 1.3% or so. Not only is that flat with the final GDP reading for the second quarter, but the internals confirm that business is wary about the number of uncertainties that lie ahead.

More specifically, nonresidential fixed investment, a category that includes business spending on structures and equipment, fell 1.3% during the third quarter, compared with a 3.6% gain during the prior period. Generally speaking, companies will not invest or hire when faced with uncertainty. Looking ahead, there are a number of uncertainties, including not only the presidential elections and the looming “fiscal cliff,” but also the weakening economic picture in Europe, Obamacare and tax reform. 

The underlying data in the 3Q 2012 GDP report and the September durable orders report make for a challenging October Jobs Report on Nov. 2. With that and a higher percentage of missed revenue forecasts, is it really a surprise that we’re once again hearing of job cuts?

That’s right, over the last several days, a number of companies, including Dupont (DD), Newell Rubbermaid (NWL), Colgate-Palmolive (CL) and Advanced Micro Devices (AMD), to name a few, have announced headcount reductions. 

The net effect of earnings and economic results led to a 1.5% drop for the S&P 500 and a more modest fall of 0.6% for the Nasdaq Composite Index last week.

Based on the preponderance of headlines, one might think that there are little to no areas in which they should be involved. But as we know, there is always a bull market out there somewhere, we just have to find it and understand how to trade or invest in it. One set of investments that did well last week were the market inverse exchange-traded funds (ETFs), such as ProShares Short Dow 30 (DOG) and ProShares Short S&P 500 (SH) that rose 1.6% and 1.4% last week, compared to declines in the S&P 500 and Dow Jones Industrial Average. While inverse ETFs are not everyone’s cup of tea, more aggressive investors would have made out even better by trading leveraged, inverse ETFs, such as ProShares UltraShort Dow 30 (DXD) and ProShares UltraShort S&P 500 (SDS) that correspond to twice the inverse performance of their respective market indices. Those were some of the ETFs I recently recommenced in my ETF PowerTrader trading service. Not only did those ETFs generate favorable returns last week, but the corresponding call options I recommended jumped significantly.

With more than 900 companies slated to report their quarterly results this week, the earnings fun will continue. Adding to the “fun” will be Hurricane Sandy. The East Coast is bracing for the monster storm and it is expected to cause severe damage. As a bookend with that bad news, we will be getting the October Employment Report at the end of the week. With this being the last major economic report before Election Day, it will be scrutinized even more closely than usual. Current consensus expectations call for 125,000 non-farm payrolls to be added in October with the unemployment rate ticking up to 7.9% from September’s 7.8%.

While there are those of us whose job it is to sift through all sorts of data — government, third party, polls, studies and of course corporate/industry data — in order to understand what is going on and how it affects the stock market, the general media will simply parrot the headline number.

The best example of this was found in the September Employment Report, which showed a drop in the unemployment rate to 7.8% from 8.1% in August. Again, the headline was the drop in the unemployment rate. Few reported that the drop in that rate was due to the continued shrinkage in the labor force, combined with a pickup in part time work. Despite the drop in the reported unemployment rate, the number of Americans that were unemployed or underemployed remained at 14.7% in September. That metric is a far better measure of what is really going on in terms of job creation, but it is not one that is mentioned by the general media.

Sincerely,

chris

Chris Versace
Editor, PowerTrend Brief

The Week Ahead

Here’s a more granular look at what investors should be watching and listening to over the next five trading days:

Monday, Oct. 29
Personal Income & Spending (September) 
Dallas Fed Manufacturing Survey (September) 
Anadigics Inc. (ANAD) 
Armstrong World Industries (AWI) 
Baidu.com, Inc. (BIDU) 
Burger King Worldwide (BKW) 
Cavium Networks (CABM) 
Cirrus Logic (CRUS) 
Gardner Denver (GDI) 
Loews Corp. (L) 
Luminex Corp. (LMNX) 
Overstock.com (OSTK) 
Tumi Holdings (TUMI) 
Texas Roadhouse, Inc. (TXRH) 

Tuesday, Oct. 30
Case-Shiller 20-city Index (August) 
Consumer Confidence (October) 
Archer Daniels Midland Co. (ADM) 
AGCO Corp. (AGCO) 
TD Ameritrade Holding Corp. (AMTD) 
Anadarko Petroleum Corp. (APC) 
Ashland Inc. (ASH) 
Avon Products (AVP) 
Big 5 Sporting (BGFV) 
Annie’s Inc. (BNNY) 
BTU International (BTUI) 
Cummins Inc. (CMI) 
Deutsche Bank AG (DB) 
DineEquity (DIN) 
Delphi Automotive (DLPH) 
Equinix Inc. (EQIX) 
Ford Motor Company (F) 
SourceFire, Inc. (FIRe) 
Flowserve Corp. (FLS) 
GNC Holdings (GNC) 
hhgregg, Inc. (HGG) 
Herbalife Ltd. (HLF) 
Johnson Controls (JCI) 
Masco Corp. (MAS) 
Nu Skin Enterprises (NUS) 
Office Depot (ODP) 
MetroPCS Communications (PCS) 
Pfizer Inc. (PFE) 

Wednesday, Oct. 31 
MBA Mortgage Index (Weekly) 
ADP Employment Change Report (October) 
Employment Cost Index (3Q 2012) 
Chicago PMI (October) 
American Tower Corp. (AMT) 
BorgWarner Inc. (BWA) 
The Clorox Company (CLX) 
CNH Global NV (CNH) 
Eaton Corp. (ETN) 
General Motors Corp. (GM) 
Garmin Ltd. (GRMN) 
Heartland Payment Systems (HPY) 
ITT Corp. (ITT) 
MasterCard Inc. (MA) 
Mueller Products (MWA) 
Papa John’s International (PZZA) 
Elizabeth Arden, Inc. (RDEN) 
Polo Ralph Lauren Corp. (RL) 
Sealed Air Corp. (SEE) 
Time Warner Cable (TWC) 
Visa Inc. (V) 
Watts Water Technologies (WTS) 

Thursday, Nov. 1 
Challenger Job Cuts (October) 
Initial & Continuing Jobless Claims (Weekly) 
Unit Labor Costs (3Q 2012) 
ISM Index (October) 
Construction Spending (September) 
Atmel Corp. (ATML) 
Bebe Stores (BEBE) 
Blount International (BLT) 
CACI International (CACI) 
Cardtronics Inc. (CATM) 
CEVA Inc. (CEVA) 
Cott Corp. (COT) 
Estee Lauder Companies (EL) 
Furniture Brands International (FBN) 
Greenbrier Companies (GBX) 
The Hain Celestial Group (HAIN) 
Harmin International Industries (HAR) 
Hillshire Brands Company (HSH) 
Kellogg (K) 
Linkedin Corp. (LNKD) 
NII Holdings (NIHD) 
Blue Nile (NILE) 
OpenTable (OPEN) 
Priceline.com Inc. (PCLN) 
Sturm, Ruger & Co. Inc. (RGR) 
Rovi Corp. (ROVI) 
RR Donnelley & Sons (RRD) 
Red Robin Gourmet Burgers (RRGB) 
Boston Beer Co. (SAM) 
Starbucks Corp. (SBUX) 
Steve Madden Ltd. (SHOO) 
Sony Corp. (SNE) 
Scripps Network Interactive (SNI) 
Skyworks Solutions (SWKS) 
Teva Pharmaceutical Industries (TEVA) 
Trimble Navigation (TRMB) 
Exxon Mobile Corp. (XOM) 
Xylem Inc. (XYL) 
Yelp Inc. (YELP) 
Zagg Inc. (ZAGG) 

Friday, Nov. 2
Nonfarm Payrolls & Unemployment Rate (October) 
Factory Orders (September) 
Accuride Corp. (ACW) 
Alcatel-Lucent (ALU) 
Cooper Tire & Rubber (CTB) 
Chevron Corp. (CVX) 
Comfort Systems (FIX) 
Gartner Inc. (IT) 
Orient-Express Hotels (OEH) 
Progressive Corp. (PGR) 
WABCO Holdings (WBC) 
Aqua America (WTR)