Macro Headwinds Drag on the Economy

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Weekly Update

The market opened the week beginning Sept. 24 down, due to the stalled progress in Europe. Additionally Caterpillar (NYSE: CAT), the largest machinery manufacturer in the world, reduced its revenue and long-term earnings guidance. The company cited lower global economic growth portending further market slowdown. The tech sector also weighed negatively against the overall market. The S&P 500 ended at 1,456.89, down 20 basis points (bps).

On Tuesday (9/25), housing prices tracked across 20 cities as measured by the S&P/Case-Schiller Index rose by 1.6% in July compared to the previous month, and are up 1.2% year-over-year. The Conference Board Index of Consumer Confidence rose to 70.3 (1985=100) for September from 61.3 in August. However, Philly Fed hawk Charles Plosser openly disputed the effectiveness of QE3; his bearish views caused the S&P 500 to end the day down 105 bps.

On Wednesday (9/26), weekly EIA figures showed a surprise decline of 2.4M bbl in US crude oil inventories to 365.2M bbl. Analysts surveyed by McGraw-Hill (NYSE: MHFI) expected an increase of 1.5M bbl. New home sales fell in August by 30 bps to a seasonally adjusted annual rate of 373,000, affecting homebuilders like Lennar (NYSE: LEN). Greek demonstrations against austerity measures highlighted the instability in Europe and served as a drag against the broader market.

Thursday brought more bearish news, as durable-goods orders sank 13.2% in August. And the Chicago PMI, a manufacturing survey index, was reported at 0.48. Generally any measure for the Purchasing Manufacturers Index above 0.5 is expansionary and anything below is contractionary. However, some of the bearish news was offset by a decline of 26,000 in US jobless claims to a new total of 359,000 and a favorable Spanish government presentation on 2013 austerity measures.

On Friday, the ratings agency Fitch reduced its forecast of Chinese GDP growth in 2012 by 20 bps to 7.8%. Many bears project China to land at 6.5% GDP growth for 2013. The S&P 500 ended the week overall down 131 bps to close at 1,440.67

ECONOMIC CALENDAR (10/1 – 10/5/2012):
Monday: ISM Index
Tuesday: Auto Sales
Wednesday: EIA Petroleum Status Report
Thursday: Factory Orders
Friday: Nonfarm Payrolls

Interested in Additional Analysis?

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