Monday, April 1, 2013
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Note: Let me thank Mark Vickery at the outset for ably
holding the fort in my absence last week.
The second quarter gets underway today after the first quarter's
impressive start to the year that pushed stocks into new all-time
high territory. Hard to envision the market sustaining the first
quarter's strong start in the current and coming quarters, though
there is no shortage of proponents on both sides of the argument.
Market bulls contend that fundamentals in terms of earnings and
valuation look better now than was the case at the time of the
2007 peak, while bears find the earnings and economic growth data
to be generally underwhelming. This debate will likely go on for
a while, though economic data on tap this week and earnings
reports from next week onwards will provide support to both
The key report in today's session is the manufacturing ISM report
coming out a little later, though European markets are closed
today and overnight trading out of Asia was on the weak side
following an underwhelming business confidence survey out of
Japan and Chinese PMI data that was positive, but a shade lighter
than expected. Regional manufacturing surveys in the U.S. have
been mixed and today's ISM survey is expected to show a modest
pullback from February levels, but it will nevertheless be
consistent with an expanding factory sector. And that will be the
key takeaway from today's ISM reading.
The employment component of the ISM index will be particularly
informative given the March non-farm payroll report coming out
this Friday. Weekly Jobless Claims data has been moving in the
'wrong' direction over the last two weeks, but the overall level
of initial claims still remains consistent with strong labor
market gains this week. The expectation is for 'headline' job
gains of about 200K in March in Friday's report, which will
follow the strong 236K reading in February. The unemployment rate
is expected to remain unchanged at 7.7%. Labor market gains are
necessary to sustain the momentum in consumer spending, which has
remained fairly resilient despite headwinds in the shape of
higher payroll taxes and gasoline prices.
Director of Research