This week, I randomly spent a precious hour of existence on this planet watching a rerun of Survivor -- and, in one of the challenges, well-built bean men such as myself were tasked with running a large bucket of water, full of holes to be plugged, from point A to point B. It's a crummy challenge if you ask me, for God has only given us 10 fingers. Nonetheless, the visual of water pouring through unplugged holes serves a great metaphor for a week as we saw more questions layer on regarding the global growth story with few additional answers.
I can't help but to sit here this Friday morning and reflect on the fact that we've received no clarity on the several factors that have dented the bull run in stocks. Each passing day I've been on the prowl for anything to set off another against-the-grain call like the one I made last week, and every day we've gotten a snake-eyes roll. Still, do note that the chorus of negatives is catching up to my original position, which is why I am in hot pursuit of a positive turn of events to move while the mere mortals stick.
By the middle of the week, it almost began to feel as if the market simply tossed in the towel, with investors resigned to the notion of not fighting the tape and instead waiting until the start of very important economic releases Monday. To me, this was apparent in the broadening in the number of sectors experiencing selling pressure, as well as in a downgrade of American Express (AXP) -- a top-tier name near a 52-week high. (Mega high-five to Real Money reader Judy Steiner for pointing out some weak action in the stock earlier in the week.) Further, stocks that had already been lagging in the past month have fallen through a trap door on strong volume.
Now we have a weekend to pay homage to our smartphones as we wait on whether China cuts its reserve-requirement ratio, or "Triple R." Still, would that constitute a definitive "all clear" sign? I'm not too sure, as it has to be balanced with below-expectations U.S. data and cautious corporate commentary, in addition to a slower first-quarter earnings growth outlook.
We'll also need to wonder about another couple of areas, detailed below, that are critical in understanding the market as we head into April.
Jobless Claims and Employment
The market tends to make hasty decisions, only to readjust in the future if it turns out to be wrong. As the bears tore open the jobless claims data and found another worse-than-anticipated macro reading, I thought they overlooked a key item: The trend in claims has flattened in the September-to-February period. This means the U.S. could be on the verge of less robust employment growth -- though, of course, "less robust" is different from talk of a double-dip recession.
The probability of that occurring is not solely based on an analysis of claims, but on newly developed soft spots on the global macro scene that could hit the manufacturing and non-manufacturing sectors. As I've hightailed recently, shares of staffing and uniform rental companies have been stuck in the mud of late, which would seem to support the view of slowing employment growth.
The Institute for Supply Management's non-manufacturing numbers could be the report I use as a mechanism for reversing my call on the market -- or it could embolden that call. If pushed, I am poised for letdowns on both fronts -- and if we do receive shortfalls to consensus, watch the stock action in industrials, as a positive move could signal we are oversold. Here's why I am pessimistic:
• February supplier deliveries in ISM-non-manufacturing notched a large drop from January.
• There was slightly less month-to-month growth in the new orders component of the February ISM manufacturing report.
• Also, let's not forget the concerning prices paid by components of each manufacturing-related report. Another month of heat in the energy components of ISM, and many could question further corporate profit growth potential in the second quarter.
• The market is in search of a China bone-throw.
• In light of the stock selloff, has there been any surfacing of mergers-and-acquisitions chatter?
• Be mentally prepared for pre-earnings announcements, which are set to add another layer of complexity.
Weekend Investor Homework: WD-40
I am able to vividly recall, as if it was yesterday, having to spray WD-40 (WDFC) on my dad's chainsaw in order to cut wood in the snow as my younger brother sat inside playing videogames. Gosh, the stuff just smells atrocious! I have a feeling the company's upcoming earnings report will likewise be tough on the nose: This company's products are caught in a global competitive price vortex, and direct sales and distributor markets in Europe have materially weakened.
The report is of more interest to me than usual given the latest cautious commentary from Caterpillar (CAT) and miners, and what that might mean for WD-40's products as it concerns their industrial use to businesses and people all over the globe. We could really receive a good feel about international demand trends close to the arrival of earnings season, so pay close attention.
More on the broad market: