Week Ahead - Economic Fireworks

Investor focus should shift this week from the statements and actions of the Federal Reserve to the economic reality of today. Actually, the shift began last week when first quarter GDP was revised sharply lower to 1.8% growth, down from 2.4%. Several critically important data points reach the wire on this holiday shortened week, including the all-important monthly Employment Situation Report, so the focus will be squarely on the economy.

Fireworks

Stocks took back some ground last week on the commentary of several Federal Reserve officials, who seemed determined to hedge market concerns about the Fed Chief’s prior week statements regarding the tapering of asset purchase programs this year and next. The market was happy to hear that the Fed would not likely raise interest rates anytime soon.

However, my response to that is that Fed talk is cheap, and that their actions continue to speak louder than words in the mortgage and bond markets. While recent housing data seemed to show a short-term surge in activity, likely the result of panicked real estate buyers previously on the fence seeking to lock in mortgage rates before they push target properties out of reach, much of the real estate data to reach the wire was dated last week and should be discounted for that.

Index ETF	Week Ending June 28	Year-to-Date
SPDR S&P 500 (NYSE: SPY)	+0.8%	+12.6%
SPDR Dow Jones (NYSE: DIA)	+0.6%	+13.8%
PowerShares QQQ (Nasdaq: QQQ)	+1.2%	+9.3%

This week we will get a firsthand look at how rising interest rates are affecting business when the monthly Motor Vehicle Sales data comes to the wire. You see, the sales of Ford (NYSE: F) and General Motors (NYSE: GM) are critically tied to auto loan interest rates. Economists surveyed by Bloomberg see the annual pace of domestic vehicle sales increasing slightly to 12.2 million in June, up from 12.1 million in May. Total vehicle sales are expected to rise as well, to 15.5 million for June, versus 15.3 million for May. It is unlikely that rates have risen far enough to start meaningfully impacting auto sales, but if they continue rising, they will. Whether we get an indication of that this week or not is of no matter, as it should be on your ongoing radar screen as a barometer of the impact of this Fed failure to communicate.

THIS WEEK’S ECONOMIC REPORT SCHEDULE
Economic Data Point	Prior Period	Expected this Period
MONDAY
ISM Manufacturing Index	49.0	50.5
Markit PMI Manufacturing	52.3	52.3
Construction Spending	+0.4%	+0.6%
TUESDAY
Motor Vehicle Sales	12.1 M	12.2 M
Factory Orders	+1.0%	+2.0%
ICSC Store Sales	+1.1	NA
WEDNESDAY
ADP Private Employment	+135K	+165K
Mortgage Activity	-3.0%	NA
Challenger Job-Cuts
International Trade (Deficit)	-$40.3 B	-$40.8 B
ISM Non-Manufacturing	53.7	54.5
Bloomberg Consumer Comfort	-28.3 (+1.1)	NA
EIA Petroleum Status	Crude Unch.	NA
EIA Natural Gas Report	+95 Bcf	NA
THURSDAY
Independence Day Holiday
FRIDAY
Employment Report (Rate)	7.6%	7.5%
-Nonfarm Payrolls	+175K	+161K
-Private Nonfarm Payrolls	+178K	+175K
Weekly Jobless Claims	346K	345K

Investors are also wise to take heed of the ISM Manufacturing Index, which is slated for release Monday. It will follow last Friday’s disappointing news from the Chicago Purchasing Managers Index, which fell to a mark of 51.6 for June, down from 58.7 in May; it was also well short of the economists’ consensus expectation. While some regional manufacturing barometers flash higher from time to time, like the Richmond Fed Index and Dallas Fed Index did last week, most are mimicking the downward trend seen in ISM’s national measure.

The ISM Manufacturing Index fell to a reading of 49.0 in May, marking economic contraction there. Economists surveyed by Bloomberg see the measuring breaking back into expansion in June, to a mark of 50.5, but that would not be so impressive a result just barely above breakeven. The trend seen in the longer term chart of this index is one of clear deterioration in the pace of growth. It is disturbing and contradictory to the Federal Reserve’s economic forecast, though, our economy is primarily service oriented. The week ahead will also offer manufacturing news in the form of the Markit Economics’ PMI measure and Factory Orders, so there will be enough to chew on for industrials investors.

There will not be much on the housing front, outside of the monthly Construction Spending data for the month of May. It will provide a good measure of the health of the economy, showing activity in private and public construction segments and in single family versus multi-family residential building. Single-family growth would reflect a healthy housing market, but multi-family projects could show the shift to renting we have discussed in the past, the result of recession, real estate collapse and tighter standards in lending and living. We will also of course be attuned to the weekly mortgage activity data to see just how applications tied to home purchases are fairing considering the rising rate trend.

It’s a light earnings week, due to the holiday and the fact that we are still ahead of the start of earnings season for Q2. However, there are a couple major earnings reports due this week, including from Ford Motor (F). It will be interesting to hear management commentary regarding rising interest rates and how and where they might affect car sales for Ford and GM (GM).

REPORTING EARNINGS
Company	Ticker
MONDAY
Advanced Photonics	NYSE: API
Investors Real Estate Trust	NYSE: IRET
Schulman (A.)	Nasdaq: SHLM
American Greetings	NYSE: AM
Mercury Systems	Nasdaq: MRCY
TUESDAY
Ford Motor	NYSE: F
Acuity Brands	NYSE: AYI
Greenbrier Cos.	NYSE: GBX
Constellation Brands	NYSE: STZ
Zep	NYSE: ZEP
WEDNESDAY
AutoNation	NYSE: AN
International Speedway	Nasdaq: ISCA
Rite Aid	NYSE: RAD
Bassett Furniture	Nasdaq: BSET
THURSDAY
China Finance Online	Nasdaq: JRJC
FRIDAY
L.J. International	Nasdaq: JADE

Obviously, the most important news of the week will come in the form of the monthly data on the labor market. Most critical of those is the Employment Situation Report. Last month, the unemployment rate remained essentially unchanged at 7.6%, though we estimated the true unemployment rate could be as high as 11.7% and underemployment might be upwards of 17.6%. So with the qualifier that the real state of labor is likely a lot worse than the government is reporting, economists’ see that version of the truth reflecting further improvement for June, with the rate dipping to 7.5%. We will tell you what it really is in our regular reporting of true unemployment next week, so you might want to follow along with the column.

Economists see nonfarm payrolls rising by a net amount of 161K in June, which would be less than May’s 175K and likely bother markets. Within that figure, the important private non-farm payroll estimation is for an increase of 175K jobs, versus 178K in May. It is hard to say how the market might digest the data, because of the change in Fed stance. In the past, bad news was good news because it meant the Fed would continue to accommodate us. However, now that the Fed seems stubbornly set on what I believe is the wrong path, this conflict of data and Fed plans might depress investors. Of the rest of the month’s jobs reports coming to the wire this week, the Challenger Job-Cuts data will probably be the only relevant bit. However, it probably will not offer anything market-moving, as the decision of corporate America to fire is much more difficult than the decision to hire, and so this data-point will lag as a result.

In conclusion, as the Fed failure fades, the market has no choice but to focus on the economic barometers that reach the news wire monthly. This week in particular offers some heavy hitters, and should be the focus of investor attention. Unfortunately, the news will not likely enthuse. Parties interested in receiving this report weekly should follow my column here.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Apple Could Benefit from Window Undressing in July

By The Greek:

It sounds strange to say but Apple (Nasdaq: AAPL) turned into a portfolio pariah over the last year, with the stock down 31% since the end of last June. It sank even further during Q2, and now everyone knows about it from Wall Street to Main Street. So, as strange as it may sound, it is possible Apple took some damage from window dressing before the close of Q2. After all, the stock was down 12% in June alone. Therefore, it is also possible that portfolio managers will be buying it back in July, and so the stock might just benefit from “reverse window dressing” or undressing in July.

Apple

Window dressing is when portfolio managers pick up stocks that have performed especially well just before the close of a reporting period. Likewise, they may dump losing stocks, especially high profile losers, before the close of a reporting period. In so doing, they can show a high profile winner and do not have to show losing securities on their financial statement of holdings. So when Joe Investor receives his statement showing him what his hired portfolio manager found savory, he does not see that stink of a name everyone hates on the list but does see that big name winner everyone loves, like say for instance Tesla Motors (Nasdaq: TSLA). That makes for a reduced possibility of Joe liquidating his stake in the mutual fund or other portfolio. In turn, that means the portfolio manager will not lose his management fee from those assets under management, and so he has some incentive.

It’s counterintuitive to value investing logic, yes, since many see value in beaten down shares, especially in a name like Apple (Nasdaq: AAPL), which many believe has extreme value appeal here. Apple now trades at a P/E of 9.1X the analysts’ consensus estimate for fiscal year 2014 (September) EPS of $43.62. Matched against 21% long-term growth expectations gives AAPL a deeply discounted PEG ratio of 0.4X. Still, it happens and it affects capital flows and stock prices, and so it may have contributed in making a cheap stock even cheaper in June.

For Apple (AAPL), I think many of you will agree that it has been a lack of news about any new disruptive product that has more meaningfully hurt the shares over the last year. I authored an article about that theory entitled, For Apple, No News is Bad News way back when. If investors were enamored with the company, it would not be in the position to be considered for removal for window dressing purposes in the first place. However, it was in that position in June, and may have been removed by a critical number of professionals as a result.

Now, heading into Q3 and July all those investors who believe in the name for the second half for whatever reason, have impetus to buy. Even if they were not window dressers, they know others were and will drive capital flow no matter what they do or do not do. So the prospect of other investors pushing the stock up from this most recent bottom here could be an important fear factor in getting capital back into the stock now. It’s a trader’s hypothesis; there’s no doubt about that, but it is still a viable a near-term reason to consider buying Apple here.

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Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Settling on Uncertainty

Stocks are settling on uncertainty, and are more likely to move lower than higher over the next several months without a retracing of recent Fed missteps. That said, the degree of decline seems to have moderated as the information ages. Meanwhile, we have the same old questionable economic data to chew on, and it will now be viewed through gray colored glasses, versus the rosy red painted by Fed accommodation of the past. Continue reading our stock market blog post for details on the day’s economic & corporate news and international & commodity markets action.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Market ETF	June 28	Year-to-Date
SPDR S&P 500 (NYSE: SPY)	-0.1%	+13.1%
SPDR Dow Jones (NYSE: DIA)	+0.0%	+14.4%
PowerShares (Nasdaq: QQQ)	+0.4%	+9.8%

Markets are uncertain what to do today, but the big names are moving lower, with IBM (NYSE: IBM) and Blackberry (Nasdaq: BBRY) shaking things up. This is the final day of trading for June and Q2, and there will be a Russell rebalancing to spice things up as well. Expect the month and quarter’s losers to continue losing today as “window dressing” occurs across portfolios. Those likely to be losing today include Apple (Nasdaq: AAPL), as no self respecting hedge fund manager wants his investors to know he has owned it recently. Some of the names being added late to portfolios might include Tesla (Nasdaq: TSLA), since it has had a stellar quarter, makes a popular product and has an admirable leader.

Economic Events

Data Point	Prior Period	Expected	Actual
FRIDAY
Chicago PMI	58.7	55.0	51.6
U.M. Consumer Sentiment	82.7	83.0	84.1

The Chicago Purchasing Managers Index (PMI) Report on Business showed deterioration in Midwest manufacturing. A severe and unexpected drop in sentiment of purchasing managers reflected the weather according to the Institute for Supply Management (ISM). ISM stated in the report that the volatility seen in the index over the last several months was atypical and hard to otherwise explain.

Well, let me give it a try… Maybe it has something to do with the abrupt shift in Fed policy, the unexpected bailing of the Federal Reserve on asset purchases at precisely the wrong moment, when the economy is deteriorating again and still vulnerable. Indeed, I think this explains the enthusiasm when managers thought Bernanke would clarify the Fed was remaining accommodative, but instead announced that tapering would begin this year and end next year. Interest rates surged on that news, and guess what, the sales of Ford (NYSE: F) and General Motors (NYSE: GM), who oh by the way operate out of the Midwest, are dependent on cheap financing.

The University of Michigan/Reuters Consumer Sentiment Index was released today at the same time for customers of the reporting institution and the rest of us. Fairness returns to the process, and robots and men are equal again, regarding the automated trading that was benefiting from playing on the few seconds preview big institutions had over the little guy. They’re still faster, but now they are at least starting at the same moment as us.

Regarding the sentiment increase for the end of June, it matches what we saw at the Conference Board measure earlier in the week. Unfortunately, like with the Conference Board measure, I expect this measure will fall off a cliff once 401K holders receive their statements after the close of June and see their retirement savings have taken a hit. The wealth effect matters greatly to consumers, and considering interest rates are ignoring Fed talk, which is cheap, I think you can count on a change next month.

Overseas Markets

EUROPE	10:00 AM	ASIA/PACIFIC	CLOSE
EURO STOXX 50	-1.0%	NIKKEI 225	+3.5%
German DAX	-0.9%	Hang Seng	+1.8%
CAC 40	-0.9%	S&P/ASX 200	-0.2%
FTSE 100	-0.5%	Korean KOSPI	+1.6%
Greek ASE	+2.3%	BSE India SENSEX	+2.7%

Japanese housing starts surged 14.5% in May, so just as investors were starting to doubt “Abenomics,” data is starting to support it. The NIKKEI soared on the news today.

The EU said it would open to membership talks with Serbia, and it appears European investors do not feel quite ready yet to let another Balkan nation into the union, especially one so close to Greece. Ironically, Greece shares surged Friday, perhaps because it now has a chance to rise on the ladder of respect among its EU brothers and shed its ugly duckling persona, which was hard-earned over the last decade.

Commodity Markets (9:59 AM ET)

WTI Crude	-0.2%
Brent Crude	-0.1%
NYMEX Natural Gas	-0.5%
RBOB Gasoline	+0.6%
Gold Spot	-0.7%
Silver Spot	+1.4%
COMEX Copper	+0.3%
CBOT Corn	-1.1%
CBOT Wheat	-0.2%
CBOT Soybeans	-0.7%
ICE Cocoa	-0.4%
ICE Sugar	-0.2%
ICE Orange Juice Conc.	+1.6%
CME Live Cattle	-0.5%

Corporate Events

Company	Ticker
FRIDAY
AZZ Inc.	NYSE: AZZ
Finish Line	Nasdaq: FINL
Emmis Communications	Nasdaq: EMMS
Acadia Realty Trust	NYSE: AKR

Today’s biggest gainers and losers were:

BIGGEST GAINERS	% Gain
RNA (Nasdaq: RNA)	+39%
Emmis Comm (Nasdaq: EMMS)	+25%
India Globalization (NYSE: IGC)	+17%
Arkansas Best (Nasdaq: ABFS)	+15%
Richmont Mines (NYSE: RIC)	+9%
Pacific Sunwear (Nasdaq: PSUN)	+15%
Tanzanian Royalty (NYSE: TRX)	+9%
VelocityShares 3X Long Silver (Nasdaq: USLV)	+10%
Fortuna Silver Mines (NYSE: FSM)	+11%
Direxion Gold Miners Bull (Nasdaq: NUGT)	+9%
BIGGEST LOSERS	% Drop
Clean Diesel Technoloty (Nasdaq: CDTI)	-36%
Blackberry (Nasdaq: BBRY)	-27%
Owens Corning Series B Warrant (OC-WTB)	-19%
Direxion Gold Miners Bear (Nasdaq: DUST)	-11%
VelocityShares 3X Inverse Silver (Nasdaq: DSLV)	-11%
AZZ Inc. (NYSE: AZZ)	-14%
Accenture (NYSE: ACN)	-13%
LHC Group (Nasdaq: LHCG)	-13%
Gentiva Health (Nasdaq: GTIV)	-12%
United Security Bancshares (Nasdaq: USBI)	-12%

Other Reports for Your Review:
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Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.