The Week Ahead: Stuck in Second Gear

 | Jun 09, 2013 | 8:00 PM EDT
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You've probably noticed that, in the last few weeks, volatility has returned to the stock market. One of the factors fueling that volatility has been the question about when the Federal Reserve will taper its longtime stimulus plan. When we get better-than-expected economic data, the market fears the Fed will do this sooner than anticipated. When we get weak data, stocks rally on expectations that the stimulus efforts will continue.

After Friday's tepid May employment report, I shared my views in a number of interviews with reporters and on-air talking heads. Before I give you my take, let's review the highlights:

• 175,000 nonfarm jobs were created in May, up from 149,000 new nonfarm jobs in April and above consensus expectations for roughly 165,000 new jobs. Despite the modest "beat," the level of job creation remains below the important level of 200,000 new jobs per month.

• The unemployment rate ticked up to 7.6% from 7.5% in April, reflecting a slight increase in the May labor-force-participation rate to 63.4%. That's up modestly vs. April's participation rate.

• There was no change in aggregate hours worked, and average hourly earnings were once again essentially unchanged.

In addition to the above, we also saw a dip in the May headline reading for the Institute for Supply Management manufacturing index -- and in its new-orders component, which signals the direction of the manufacturing economy to come. So the U.S. does indeed seem to be tracking for 2% economic growth in 2013. As tends to be the case, there are better-performing sectors -- autos and housing, in particular. But, by and large, we continue to be stuck in second gear, if not first. What the May jobs report also shows is that, at least so far, we have yet to see any sequester-related doomsday scenarios emerge.

Here are my main two takeaways from the report.

1. The Fed is not likely to taper immediately. I've been telling the reporters and talking heads that the May employment report, on its own, was lukewarm. Combined with ISM manufacturing, as well as recent indications on the European and Chinese economies, its modest growth tells me the Fed will not ease off on its stimulus efforts until late in 2013. That's unless, in the coming weeks, we get some robust economic data on the consumer and manufacturing fronts.

That means investors will be paying attention to May retail sales and industrial production, as well as the capacity-utilization data, all of which are due Thursday and Friday. With disposable income tight and savings rates low, the key question is how long the consumer will be able to do just that -- consume. Granted, we are seeing the return of the wealth effect, given the rise in the stock market and rebounding home prices. But, given market inflows and rising mortgage rates, that influence will only carry spending so far. 

2. Apple has the attention of the stock market. While the economic data for the week will be back-end-loaded, it will kick off with a bang Monday -- an Apple (AAPL) bang -- when CEO Tim Cook delivers his keynote address at the Worldwide Developers Conference. Not surprisingly, there is rampant speculation over what he will introduce -- new Macs, new Mac notebooks, an overhauled iOS or iRadio, perhaps, given recently announced deals with Sony (SNE) and others.

From my perspective, the event will be a binary one: Either it will jumpstart interest in Apple's products or it won't -- plain and simple. The key will be Cook and crew introducing another "wow" or "must have" product that not only drives consumers, but also stands to have a meaningful impact on revenue and margins. That latter part is needed in order for the stock to work. 

On the earnings front, last week brought dismal fiscal first-quarter results from Jos. A. Bank Clothiers (JOSB), with comparable store sales down 8.5% -- though direct-marketing revenue rose 12.6% year over year. Following that, this week we'll get earnings results from Men's Wearhouse (MW) and Philips-Van Heusen (PVH). Also issuing results will be Lululemon (LULU), another clothing retailer that saw its bottom fall out, at least in some of its yoga pants. Lululemon management has a knack for beating Street expectations. But, shifting gears (no pun intended), heavy-truck manufacturer Navistar (NAV) has a spotty recent record in that regard. That company is also scheduled to put out its quarter this week, but given expectations for a rebound in the coming quarters, the shares will hang on management's outlook. 

One thing to keep in mind: As we exit the trading week, there will be only 10 trading days left in the current quarter. That means many companies will soon enter their quiet period, and before too long we'll be getting pre-earnings announcements, both good and bad. 

Here's a more extensive look at what's on tap for the week ahead.



Economic Calendar

Monday, June 10

  • No major economic releases

Tuesday, June 11

  • Wholesale Inventories (April)

Wednesday, June 12

  • Mortgage Bankers Association Mortgage Index (Weekly)
  • Treasury Budget (May)

Thursday, June 13

  • Initial and Continuing Jobless Claims (Weekly)
  • Retail Sales (May)
  • Import and Export Prices (May)
  • Business Inventories (April)

Friday, June 14

  • Producer Price Indices (May)
  • Industrial Production (May)
  • Capacity Utilization (May)
  • Michigan Sentiment Index (June)



Earnings Calendar

Monday, June 10

  • Annie's Inc. (BNNY)
  • Majesco Entertainment (COOL)
  • Diamond Foods (DMND)
  • Lululemon Athletica (LULU)
  • Navistar International (NAV)

Tuesday, June 11

  • LDK Solar (LDK)
  • Oxford Industries (OXM)
  • The Pepe Boys (PBY)
  • Piedmont Natural Gas (PNY)

Wednesday, June 12

  • Five Below (FIVE)
  • H&R Block (HRB)
  • Sigma Designs (SIGM)

Thursday, June 13

  • Cherokee Inc. (CHKE)
  • Luby's, Inc. (LUB)
  • Men's Wearhouse (MW)
  • Philips-Van Heusen (PVH)
  • Restoration Hardware (RH)

Friday, June 14

  • ALCO Stores (ALCS)
  • Casey's General Stores (CASY)

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