During the last few days, several factors have weighed on the stock market -- renewed military action in the Middle East; ongoing tension in the Ukraine; further evidence of a slowdown in the eurozone; tepid growth in China; and growing concern about that country's economic health and about its consumers. In our view, those were the primary factors that led to string of consecutive drops in the S&P 500 for most of the week.
No doubt some of Thursday's market drop was due to the U.S. durable-orders report for August, whose headline number showed an 18% drop. Once again, we were amazed at the knee-jerk reaction, given that core capital-goods orders -- the one line item in the report that truly reflects the overall industrial and manufacturing economy -- rose last month. Better yet, the July figure was revised higher. This is a simple reminder of something we each said long before we began writing these pieces together: You must dig into the data in order to get an accurate picture of what is really going on.
As we say that, we are fully prepared to see a dip in second-half gross domestic product growth from the second-quarter annualized result of 4.6%, which we think was an upwardly revised and unsustainable print. Growth estimates for the July-to-September quarter range as high as 3.6%, but the average reported by The Wall Street Journal is 3% for both the third and fourth quarters. If those projections hold, growth in the second half will turn out to be far slower than it had been in the same period in 2013.
Source: The Wall Street Journal
On the bright side, it's increasingly looking as though the U.S. is driving the global industrial economy, based on the recent string of purchasing managers index (PMI) numbers and other manufacturing data. The September flash PMI report from Markit Economics certainly confirmed that thought, showing another month of strong rises in output and new orders.
Other recent indicators included the American Trucking Association's advanced seasonally adjusted For-Hire Truck Tonnage Index, which reached a record high in August. In addition, rail-car loadings continued to strengthen over the last few weeks, per the Association of American Railroads. Versace remains particularly bullish on American Railcar (ARII) shares.
One particularly important item, in our view, concerns the Chinese consumer. While many are focused on the recent weakness in manufacturing PMIs there, we're taking note of the third-quarter Westpac-MNI China consumer sentiment index, which came in at 113.8 -- its lowest level since the fourth quarter of 2011. Below that headline figure was something more alarming: growing concerns regarding employment. Here, the September survey fell for a fourth straight month, reaching its lowest level since February 2009. To say this is not good is an understatement, and in our view these data help explain the reversal in the excitement and share price of Alibaba (BABA).
Turning to the week ahead, the usual start of the monthly data deluge is set to hit as we close out the September quarter. Amid all of those reports, we once again remind you to look beneath the headline figures in order to determine what is really happening in the global economy.
We will be zeroing in on wage growth, or perhaps the lack thereof, in Friday's September employment report. We'll also be looking at the mix of full-time vs. part-time job creation ahead of the holiday season. We'll watch for inflation outside of the food and energy complex, as well, and that will have us looking deeper into the various PMI reports due out in the coming days.
In terms of earnings reports to watch, the field is pretty thin this week. Remember, in two weeks or so we will once again be hip-deep in corporate earnings. Of the reports on tap this week, we'd focus on Walgreen (WAG), Global Payments (GPN) and once of Versace's favorite companies, McCormick (MKC). While Hawkins is the baker of the bunch, Versace adores the company's dividend dynamo status.
Below is a more detailed look at what's coming at you in the week ahead. Be sure to check back midweek for The Corner of Wall & Main, in which we will dish on the first half of the trading week and other key matters and thoughts, as well as how to play it all.
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Economic Calendar
Monday, Sept. 29
- Personal Income and Spending (August)
- Personal Consumption Expenditures (PCE) Prices (August)
- Pending-Home Sales (August)
- Dallas Federal Reserve Manufacturing Survey
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Tuesday, Sept. 30
- HSBC China Manufacturing Purchasing Managers Index (PMI) (September)
- Case-Shiller 20-city Index (July)
- Chicago PMI (September)
- Consumer Confidence (September)
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Wednesday, Oct. 1
- Markit Eurozone Manufacturing PMI (September)
- Markit U.S. Manufacturing PMI (September)
- J.P. Morgan Global Manufacturing PMI
- ADP Employment Change (September)
- Mortgage Bankers Association (MBA) Mortgage Index (Weekly)
- Gallup U.S. Job Creation Index
- Institute for Supply Management (ISM) Manufacturing Index (September)
- Crude Inventories (Weekly)
- Auto and Truck Sales (September)
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Thursday, Oct. 2
- Challenger Job Cuts Report (September)
- Initial and Continuing Jobless Claims (Weekly)
- Factory Orders (August)
- Natural Gas Inventories (Weekly)
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Friday, Oct. 3
- J.P. Morgan Global Composite PMI (September)
- J.P. Morgan Global Services PMI (September)
- Employment Report (September)
- ISM Services (September)
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Earnings Calendar
Monday, Sept. 29
- Authentidate (ADAT)
- Cintas Group (CTAS)
- Synnex Corp. (SNX)
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Tuesday, Sept. 30
- Aehr Test Systems (AEHR)
- Walgreen Co. (WAG)
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Wednesday, Oct. 1
- Acuity Brands (AYI)
- Azz Inc. (AZZ)
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Thursday, Oct. 2
- Actuant Group (ATU)
- Global Payments (GPN)
- McCormick & Co. (MKC)
- Constellation Brands (STZ)
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Friday, Oct. 3
- [No significant reports scheduled]
