The Week Ahead: Unmoved by the Sequester

 | Mar 03, 2013 | 8:00 PM EST  | Comments
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Late Friday, President Obama signed into law a directive that will slash $85 billion in federal spending. That's right, folks: The sequestration is upon us. The effect of this 2.4% spending cut will trickle in over the coming weeks, and we've already witnessed much debate as to what its real impact will be. If we use last week's stock-market action as a barometer it says that, at least for now, Mr. Market does not see a big to-do over these cuts. 

Yes, some sectors of the economy will be hurt more than others -- hello, defense and government contractors -- and the economy is bound to slump as a result. But I think investors were looking at some others things this past week, such as the underlying strength in core capital goods and the continually improving domestic manufacturing economy. The January durable-orders figures, for instance, showed a 13.5% increase in machine-tool orders, and the Institute for Supply Management reported solid month-over-month climbs in production and orders in its February manufacturing numbers.

To be fair, there were some warning signs in the ISM Manufacturing report: The employment component dipped back to October levels, and the "prices paid" figure continued climbing. What concerns me is that, despite modestly higher numbers in personal income and spending for January, gas prices at the pump took a rocket ship ride in February. Given this, it's unlikely consumers will open their wallets quite so easily in the coming weeks. For me, the silver lining is that people will still spend where they have to do so, and that means eating at home and making sure they are safe and secure -- which reinforces my views on companies like McCormick (MKC), Mondelez (MDLZ) and ADT (ADT). 

On Friday, as well, we got the annual shareholder letter from "Uncle Warren." As he does each year, Warren Buffett reviewed the progress of Berkshire Hathaway (BRK.A) and offered both wit and wisdom along the way. This time around, Buffett mentioned that he was disappointed he and his team were unable to make a major acquisition in 2012, despite having pursued "a couple of elephants." He went on to say that he has donned his safari outfit -- his words, not mine -- and is once again looking for elephants. 

So far this year, mergers-and-acquisitions activity has picked up vs. 2012, and Mr. Market is bound to take Mr. Buffett's words as a cue that this will continue. That, in turn, should result in the usual speculation game of who will buy who -- or, at least, who should be buying who. But it also means stock prices will remain frothy, at least for some sectors. 

The Week Ahead

Looking ahead to the next week of trading, the pace of economic data is set to slow, but we're still slated to get a big report on Friday -- the February employment report. Given my fixation with consumer spending, I'll be keeping a keen eye on the average hourly-wage figure, as well as on the more comprehensive U6 unemployment rate. 

In advance of any sequester-related job cuts, a number of companies have made headcount reductions, among them JPMorgan Chase (JPM), Dreamworks Animation (DWA), Boeing (BA) and Logitech (LOGI). A recent conversation with a little birdie also told me Verizon (VZ) has been in the process of cutting jobs. All of this tells me we will probably see the unemployment move up in the coming months -- that is, unless the participation rate falls. Neither would be a good thing in my book.

In terms of corporate earnings on the docket this week, it's sin time: We're due to hear from a number of gaming stocks, including Boyd Gaming (BYD) and Shuffle Master (SHFL), as well as from firearm manufacturer Smith & Wesson (SWHC). We're scheduled to see a smattering of industrial names, as well, with reports from Blount (BLT) and Cooper Cos. (COO). Ms. Consumer will also rear her head as we digest the latest from BigLots (BIG), Maidenform (MFB), Kroger (KR) and Ann Taylor (ANN).

As if that's not enough to keep you busy this week, I'm sure the political theater in Washington will be chock full of fresh finger-pointing and demagoguery. 

Here's a broader look at what's on tap this trading week:

__________________

Economic Calendar

Tuesday, March 5

  • Institute for Supply Management -- Services Index (February)
  • HSBC China Services Index
  • Markit Eurozone Service Purchasing Managers Index

____

Wednesday, March 6

  • HSBC Emerging Markets Index
  • Mortgage Bankers Association Mortgage Index (Weekly)
  • ADP Employment Report (February)
  • Factory Orders (January)
  • Federal Reserve's Beige Book (March)

____

Thursday, March 7

  • Weekly and Continuing Jobless Claims (Weekly)
  • Unit Labor Cost (Fourth Quarter of 2012)
  • Consumer Credit (January)

____

Friday, March 8

  • Nonfarm Payrolls and the Unemployment Rate (February)

 

__________________________

Corporate Earnings Calendar

Monday, March 4

  • Boyd Gaming (BYD)
  • Nautilus (NLS)
  • Shuffle Master (SHFL)

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Tuesday, March 5

  • Casella Waste (CSWT)
  • Check Point Systems (CKP)
  • Constellation Energy (CEP)
  • NutriSystem (NTRI)
  • Verifone (PAY)
  • Smith & Wesson (SWHC)

____

Wednesday, March 6

  • American Eagle Outfitters (AEO)
  • Alvarion (ALVR)
  • Brown Forman (BF)
  • BigLots (BIG)
  • Hovnanian Enterprises (HOV)
  • Maidenform (MFB)
  • Vail Resorts (MTN)
  • PetSmart (PETM)
  • Staples (SPLS)
  • The Fresh Market (TFM)

____

Thursday, March 7

____

Friday, March 8

  • Ann Taylor (ANN)
  • Foot Locker (FL)
  • Main Street Capital (MAIN)
  • Tecumseh (TECUA)

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