January Weather Hampered Economy and Could Hurt Stocks

As we suspected, January weather is proving to have hampered economic activity. Blizzards and super storms rampaged across much of the nation last month, and economic reports are now showing the effects born to the economy. The latest such report, and broad reaching measure to make this case, is Leading Economic Indicators, but we've also seen data from companies like FedEx offering good reason to adjust expectations and portfolios.

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January Weather Hampered Economy and Could Hurt Stocks

As a publisher, I can give you firsthand testimony to the economic effects of January's weather. Almost all of my advertisers have reported dead business through the month, which has weighed on our own cash flow as well. January offered a rude awakening as to just how perilous are the operations of small businessmen, who have weathered the worst part of the recession, but are still just scraping by, and with little leeway for error. While I've wanted to publish this article for several days now, I've been hampered by the issues weighing on our clients. Still, we at least made mention of our expectations for this weather effect in this week's "Business Calendar."

Economic reports should continue to prove out that the harsh weather that battered all of the country in January, especially the population concentrated Northeast, provided a speed bump to economic growth. The few January reports that have reached the wire to-date offer enough support to our case, but the stock market has not shown ill-effect as yet.

The Leading Indicators Index, reported for January this morning, showed only a 0.1% increase. The meek result compared against December's revised 0.8% increase and November's 1.1% rise. The Conference Board, which puts the LEI together, reported that while the economic trend is a growing one, current economic conditions remain weak. The cumulative change in the LEI over the last six months is a solid 3.0%. However, the Board reported that the Coincident Economic Index, which measures current conditions, rose just 0.1%, following a 0.3% increase in December and 0.2% rise in November. Furthermore, the Conference Board's Lagging Economic Index dropped 0.1%.

The factors behind the softness in January were listed as weaker housing permits and poor labor market indicators. We've posited here before that the weather likely played a role in weird results from the Labor Department last month, if not keeping depressed job searchers buried at home. We've likewise warned that the weather might throw off January's housing data, some of which has already been released, with more to come next week.

Other reports have more clearly depicted the sad season we describe here. Industrial Production, reported Wednesday for January, produced a 0.1% decrease where economists were looking for a 0.5% increase. Capacity Utilization also confounded economists, falling to 76.1% from a revised 76.2% rate in December. Economists were looking for an improvement to 76.3%. Now, Industrial Production actually softened partly due to lower utility production on warmer average temperatures in January, which is a counter to our argument. Though, Factory Production in isolation and excluding motor vehicle production, rose modestly 0.1%, agreeing with our theory.

The softer data piles on... The month's Housing Starts data showed a slippage in permitting activity, as the pace slowed to 562K, from 627K in December. Furthermore, single-family home authorizations fell 4.8% to 421K. The pace of single-family housing starts also fell 1% to 413K. January's Retail Sales (and sales excluding autos) rose 0.3%, but both figures missed the economists' consensus expectations for 0.5% increases.

As economists seem to have overlooked the weather in January, they have likely conveyed a certain optimism to strategists, who have likewise guided portfolio managers and analysts. As more data points are reported for January, and if they are reported significantly off, then stocks could sell off briefly over the short-short-term on a shift in understanding.

Indeed, some companies have been directly impacted by the weather already, and others will likely report earnings impact in their Q1 releases. FedEx (NYSE: FDX) cut its projected fiscal third quarter EPS forecast to a range of $0.70 to $0.90, from $0.95 to $1.15, due to in part to "winter storms." Analysts had been looking for EPS of $1.02 on average, based on Bloomberg's data. Whether directly or indirectly, and based on my anecdotal witness, I think we can expect companies to report weather impacted results for this quarter. With economists, strategists and analysts potentially all off the mark, there's risk to stocks.

Given the January weather is not an ongoing issue, you can look for analysts to blow off any negative surprises, and to guide investors to stick with their recommendations as they also save face. The weather is still considered a temporary and insignificant factor in valuation (though that's increasingly debatable given climate change), and so any damage to stocks should be only a trading hit that might open opportunities for long-term buying interests in good names. However, most technical charts, including those by our Technical Analyst, show a market overdue for a correction. Thus, perhaps we have here a catalyst.



The day's corporate wire offers investor days at Gazprom (OTC: OGZPY.PK), Disney (NYSE: DIS), Crane (NYSE: CR), Health Net (NYSE: HNT), Symmetry Medical (NYSE: SMA), and JDSU (Nasdaq: JDSU). The EPS wire includes Duke Energy (NYSE: DUK), Waste Management (NYSE: WM), Nordstrom (NYSE: JWN), PG&E (NYSE: PCG), CF Industries (NYSE: CF), J.M. Smucker (NYSE: SJM), 3D Systems (Nasdaq: TDSC), ABB (NYSE: ABB), Acorda Therapeutics (Nasdaq: ACOR), Akeena Solar (Nasdaq: WEST), Alere (NYSE: ALR), Allied World Assurance (NYSE: AWH), Alnylam Pharmaceuticals (Nasdaq: ALNY), Altisource Portfolio (Nasdaq: ASPS), Ameresco (Nasdaq: AMRC), American Public Education (Nasdaq: APEI), Amerigon (Nasdaq: ARGN), Anadigics (Nasdaq: ANAD), Antigenics (Nasdaq: AGEN), Apache (NYSE: APA), Argo Group (Nasdaq: AGII), Aruba Networks (Nasdaq: ARUN), Athenahealth (Nasdaq: ATHN), Barrick Gold (NYSE: ABX), Brocade Communications (Nasdaq: BRCD), Build a Bear (NYSE: BBW), Builders FirstSource (Nasdaq: BLDR), Cabela’s (NYSE: CAB), Career Education (Nasdaq: CECO), Clearwire (Nasdaq: CLWR), Corn Products (NYSE: CPO), Developers Diversified (NYSE: DDR), Dr. Pepper Snapple (NYSE: DPS), Ecolab (NYSE: ECL), EOG Resources (NYSE: EOG), Freightcar America (Nasdaq: RAIL), Gentiva Health (Nasdaq: GTIV), Golden Energy Marine (Nasdaq: SHIP), Goodrich (NYSE: GDP), Healthsouth (NYSE: HLS), Hornbeck Offshore (NYSE: HOS), Huntsman (NYSE: HUN), Hyatt Hotels (NYSE: H), Intuit (Nasdaq: INTU), Investors Title (Nasdaq: ITIC), KKR Financial (NYSE: KFN), LaBranche (NYSE: LAB), Liz Claiborne (NYSE: LIZ), National Retail Properties (NYSE: NNN), Oil States International (NYSE: OIS), PG&E (NYSE: PCG), Pool Corp. (Nasdaq: POOL), Pride International (NYSE: PDE), Red Robin (Nasdaq: RRGB), Revlon (NYSE: REV), Rogers (NYSE: ROG), School Specialty (Nasdaq: SCHS), Strayer Education (Nasdaq: STRA), Timberland (NYSE: TBL), Toro (NYSE: TTC), TRW (NYSE: TRW), Ventas (NYSE: VTR), Virgin Media (Nasdaq: VMED), Weight Watchers (NYSE: WTW), Williams (NYSE: WMB) and more.

This article should interest investors in Bank of America (NYSE: BAC), J.P. Morgan Chase (NYSE: JPM), Goldman Sachs (NYSE: GS), Citigroup (NYSE: C), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), TD Bank (NYSE: TD), PNC Bank (NYSE: PNC), State Street (NYSE: STT), Janus (NYSE: JNS), T. Rowe Price (Nasdaq: TROW), General Electric (NYSE: GE), Wal-Mart (NYSE: WMT), McDonald's (NYSE: MCD), Alcoa (NYSE: AA), American Express (NYSE: AXP), Boeing (NYSE: BA), Caterpillar (NYSE: CAT), Cisco Systems (Nasdaq: CSCO), Chevron (NYSE: CVX), DuPont (NYSE: DD), Walt Disney (NYSE: DIS), Home Depot (NYSE: HD), Hewlett-Packard (NYSE: HPQ), IBM (NYSE: IBM), Intel (Nasdaq: INTC), Johnson & Johnson (NYSE: JNJ), Kraft (NYSE: KFT), Coca-Cola (NYSE: KO), 3M (NYSE: MMM), Merck (NYSE: MRK), Microsoft (Nasdaq: MSFT), Pfizer (NYSE: PFE), Procter & Gamble (NYSE: PG), AT&T (NYSE: T), Travelers (NYSE: TRV), United Technologies (NYSE: UTX), Verizon (NYSE: VZ), Exxon Mobil (NYSE: XOM), Paychex (Nasdaq: PAYX), Manpower (NYSE: MAN), Robert Half International (NYSE: RHI).

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