The Week Ahead: Corrosion Under the Surface

 | Dec 10, 2012 | 6:00 AM EST
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The first five trading days of December delivered mixed results for the major stock indices. The Dow Jones Industrial Average was a clear winner, having risen 1% in the past five trading days, while the S&P 500 was essentially unchanged. The Nasdaq Composite lost 1.1%. As with the prior week, one of the key drags on the Nasdaq has been Apple (AAPL), whose shares dropped nearly 9% last week. With that, the stock's retreat from its 52-week high is now just over 24%.

Apple (AAPL) -- Daily

Even though Apple's iPhone 5 has gone on sale in more than 50 additional countries over the last few weeks, and will soon be launched in China, shares of the company have fallen victim to uncertainty regarding the fiscal cliff -- and, with it, the fate of the capital-gains tax. That has prompted investors to exit the stock, despite what I view as favorable growth prospects for the company.

But Apple is not alone in dealing with these uncertainties. Looking as far back as October, we can trace several pronounced downward moves in a number of high-flier stocks, including in Google (GOOG), Disney (DIS) (see a recent Real Money Pro technical analysis here) and AT&T (T). With only a few weeks to go, it's possible this could spread to other big gainers this year, particularly as investors look to comply with wash-sale rules even as they look to book profits. Potential candidates could include PulteGroup (PHM) and other housing plays, Smith & Wesson (SWHC), Henry Schein (HSIC), among others. 

Generally speaking, domestic economic data were also mixed last week. While we once again saw a fall in the unemployment rate, with a dip to 7.7% in November from 8.3% in July, job creation remains well below 200,000 per month. Viewed from a different perspective, what's driving down the unemployment rate is the continued rise in Americans outside the labor force that. After all, if you're not in the labor force then you can't be considered employed or unemployed. Sorry, folks, that's the way the government tabulates the data. 

The other pseudo-eye-opener was the November reading in the Institute for Supply Management's Manufacturing Index, which fell to 49.5 -- below the expansion/contraction line of 50. This may seem surprising, but it shouldn't have been to those who have been paying attention to a number of the regional Federal Reserve manufacturing reports. What I did find surprising, underneath the ISM headline number, was the drop in the orders component. Declining orders likely reflect concern over the "fiscal cliff," as well as the continuing contraction in Europe. 

Turning to the five trading days ahead of us, the flow of economic reports continues to slow -- but, even so, there are a few noteworthy ones to watch this week. In particular, I'll be keeping tabs on Dollar General (DG), Costco (COST) (see a Real Money analysis here), Joy Global (JOY) and VeriFone (PAY). In terms of the economic calendar, taking center stage toward the end of the week will be retail sales, inflation and the manufacturing economy. Prior to that, it's likely to be a few days of non-events, and I'm lumping the FOMC rate decision into that category. So, for first few days of the trading week, "fiscal cliff" negotiations are poised to be in the spotlight following the Sunday morning talk show gabfest.  

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


Economic Events This Week

  • Trade Balance (October) -- Tuesday, Dec. 11

  • Mortgage Bankers Association (MBA) Mortgage Index (Weekly) -- Wednesday, Dec. 12
  • Export & Import Prices (November) -- Wednesday, Dec. 12
  • Federal Open Market Committee Rate Decision (December) -- Wednesday, Dec. 12
  • Treasury Budget (November) -- Wednesday, Dec. 12

  • Initial and Continuing Jobless Claims (Weekly) -- Thursday, Dec. 13
  • Retail Sales (November) -- Thursday, Dec. 13
  • Producer Price Index (November) -- Thursday, Dec. 13
  • Business Inventories (October) -- Thursday, Dec. 13

  • Consumer Price Index (November) -- Friday, Dec. 14
  • Industrial Production (November) -- Friday, Dec. 14
  • Capacity Utilization (November) -- Friday, Dec. 14


Corporate Earnings This Week

  • IDT (IDT) -- Monday, Dec. 10
  • Orchard Supply Hardware (OSH) -- Monday, Dec. 10

  • Casey's General Stores (CASY) -- Tuesday, Dec. 11
  • Dollar General -- Tuesday, Dec. 11
  • The Pantry (PTRY) -- Tuesday, Dec. 11

  • Costco -- Wednesday, Dec. 12
  • Joy Global -- Wednesday, Dec. 12

  • Hovnanian Enterprises (HOV) -- Thursday, Dec. 13
  • VeriFone -- Thursday, Dec. 13
  • Pier 1 Imports (PIR) -- Thursday, Dec. 13
  • Quicksilver (ZQK) -- Thursday, Dec. 13

  • Rick's Cabaret (RICK) -- Friday, Dec. 14
  • Spartech (SEH) -- Friday, Dec. 14

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