It's time to digest the actual weak data in China. Over the past month and a half, shares in China have been destroyed on tepid signs of a slowing economy and speculation of a world ending scenario.
China's markets slid 2.9% overnight, reaching their lowest level since July 8. Chinese car sales data will be arriving this week.
The country's latest GDP was not too bad, and retail sales, while slowing, have still been growing nicely. And companies from Starbucks (SBUX) to Royal Caribbean (RCL) continue to report strong demand for their respective products.
But in the coming weeks, investors will have to digest the weak data that the stock market in China has been sniffing out. That could put pressure on global markets again, if the softening trend in China's auto sales is any indication.
Ford (F) expects to sell 23 million to 24 million cars in China this year, compared to 24 million last year. If sales do decline, it would mark the first time since 1990 there has been drop in sales in the country for Ford.
Audi recently warned on China. According to the car company, sales in China will "turn into a bumpy road in the next few months," said CEO Rupert Stadler in an earnings call.
General Motors (GM), a holding of the Action Alerts PLUS charity portfolio co-managed by Jim Cramer, sold a record 1.7 million vehicles in the first half of the year, growing 4.4% year over year. The slight problem: sales growth slowed markedly versus the 10.7% gain seen in the first half of 2014. Moreover, sales at General Motors, Ford and others are slowing just as they are upping investment in the country with new plants and sales people -- a recipe that could slam profits in the back half of 2015 and into 2016.
China's auto trade data are getting ugly as well. First-half vehicle sales rose 4.8% over a year ago, which is down from 11.2% growth in the same period of 2014, according to the China Association of Automobile Manufacturers.
The swift plunge in car sales, as seen in the chart below, suggests automakers are likely to make deep cuts in production soon, to get inventory back in balance. I think news like that will weigh on the markets even more, and especially on the shares of the automakers that largely have sidestepped being priced for disaster in China.
Source: China Associates of Automobile Manufacturers
It will be very important to watch how the markets (both China's and U.S. indices) react to the avalanche of depressing data out of the country in coming weeks.
If the market shrugs it off, it would suggest the rout in the past month has captured the first round of dreary results. On the other hand, if we see another stock plunge, it could imply a deeper slowdown in the country (as in outright declines in auto sales and GDP growth falling below 7%) later this year that needs to be accounted for in the share prices of multinationals.
In talking with executives this earnings season, I have been left with a sense they are not being truthful with investors on what they are seeing in the country, and that could lead to a big problem in delivering their guidance ranges.
Don't laugh at this company's looming IPO, saying "oh, it's just a fad." After immersing myself for the first time in a hardcore spinning class this past weakened, I "get" Soulcycle's very strong results in the past three years.
People are obsessed with spinning -- it's a way of life, from the special shoes to the early arrival to class to reserve a bike to the sense of community among fellow riders. Just from studying people, I felt like eating out would be cut faster in an economic downturn than spinning.
That said, I am a bit keener on the upcoming Planet Fitness IPO ¿ it's a wider market opportunity in my view.