Last week closed the books on the third quarter from both corporate and investor perspectives. In the last three months, the S&P 500 has climbed 5.8%, while the Nasdaq rose 6.2%. Those returns have brought their year-to-date returns to 14.6% and 19.6%, respectively. They were pretty strong moves, given the data that points to a slower second half of the year with respect to the global economy.

It seems that data, which in my view includes the growing number of companies that have cut expectations in the last few weeks, has finally started to catch up to the stock market. Last week, we received a smattering of negative news, and the S&P 500 and Nasdaq fell 1.3% and 2%, respectively. And that was before we learned over the weekend that China’s manufacturing output fell at the fastest pace since March as new export orders declined at the sharpest rate in 42 months per the HSBC China Manufacturing PMI for September. Also over the weekend, reports suggest that Spain is set to borrow 207.2 billion euros in 2013.

That caps off a week that saw the U.S. gross domestic product (GDP) figure ratcheted down to 1.3% from the prior 1.7% reading, and continued declines in the manufacturing economy via the latest Chicago PMI and durable goods figures. Digging a little deeper on the Chicago PMI headlines, the full report showed that new orders contracted, the employment reading was at its lowest in several months and prices paid jumped significantly. This situation echoes similar results in the September Empire State Manufacturing Survey released just two weeks ago.

Even though consumer spending rose 0.5% in September, factoring in higher gas prices, spending was far more muted during the month. Somewhat worrisome was the continued decline in the savings rate, which fell to 3.7% in August from a recent high of 4.4% in June. Not only did that reading mark the lowest level since February but, coupled with the trend of falling disposable income and rising prices, it does not paint a pretty picture for the consumer in the coming months.



Chris Versace
Editor, PowerTrend Brief

The Week Ahead

We start the fourth quarter off with a bang this week with a number of key economic indicators, some corporate earnings and, surprisingly, several company analyst meetings. The week’s economic data falls into two camps — manufacturing and employment. On the manufacturing side, we’ll get several looks at the domestic manufacturing economy — including one from ISM and another from Markit Economics. Based on recent regional Federal Reserve Bank reports, as well as weakening new order data over the last few months, the potential for an upside surprise seems low.

Later in the week, we’ll get the latest reading on domestic job creation from several sources, including ADP (ADP) and The Bureau of Labor Statistics. Other employment indicators released ahead of Friday’s jobs number will be had from Intuit (INTU) and CBIZ’s Small Business Employment Index. As I write this report, the current consensus for September’s non-farm payrolls is 113,000 on a range of 75,000-162,000. While the market will react to the headline number, the devil is in the details and, as such, I’ll be watching average hourly earnings, the labor force participation rate and prior month revisions. While there may be some that think we could see a better than expected report on Friday, there is a growing sense of unease that is likely to temper job creation in the coming months. The Business Roundtable’s third quarter CEO Economic Outlook Survey found more top executives now expect their firms to cut jobs rather than add them in the next six months.

All of this will make the first presidential debate an interesting event to watch this week. Needless to say, I’ll be tuned in and ready to alert PowerTrend Profits and ETF PowerTrader subscribers if it looks like any fallout from the first of four scheduled presidential debates might impact our holdings.

Here is a more detailed look at what’s on tap over this trading week:

Monday, Oct. 1
ISM Manufacturing Index (September)
Construction Spending (August)
Markit Eurozone Manufacturing PMI (September)
Markit U.S. Manufacturing PMI (September)

Tuesday, Oct. 2
Auto & Truck Sales (September)
Acuity Brands (AYI)
The Mosaic Company (MOS)
Resources Connection (RECN)
Xyratex Ltd. (XRTX)

Wednesday, Oct. 3
Markit Eurozone Services and Composite PMI (September)
MBA Mortgage Index (Weekly)
ADP Employment Report (September)
ISM Services Index (September)
Family Dollar Stores (FDO)
Monsanto Co, (MON)
RPM International (RPM)

Thursday, Oct. 4
Challenger Job-Cut Report (September)
Initial & Continuing Jobless Claims (Weekly)
Factory Orders (August) – Thursday
FOMC Minutes (Sept. 14 meeting)
International Speedway Corp. (ISCA)
Marriott International (MAR)

Friday, Oct. 5
Monster Employment Index (September)
Nonfarm Payrolls and Employment Report (September)
Consumer Credit (August)
Constellation Brands (STZ)