The Economic Message Is Getting Harder To Ignore

Includes: DIA, QQQ, SPY
by: Markos Kaminis

Over the course of the last several weeks and months I've been noting and reporting on a changing economic message. I brought attention to how the Federal Reserve and the market have ignored that message. But, the economic message is getting harder to ignore. Today, two more data points further pounded in the message that the economy is not as healthy as the Fed, the White House and the market would have you believe.

Over recent weeks, I said we might even be ignoring the signs of a coming recession, given Europe's linchpin Germany has fallen into it, jobless claims in the U.S. were on the rise, and the latest GDP data was not sizing up to par. Before that I noted that the severe drop-off of consumer sentiment was a recession signal, and probably the result of high hopes on the passage of political ploys and on stock market flows. Before that, I was anticipating a downgrade of the economic outlook by the Federal Reserve, given its own discussion indicating so, but when the Fed published its revised forecast in March, the Fed's math simply did not add up.

Despite the market's ignorance to the economic signals, I suggested it might be time to Sell the SPY, or the SPDR S&P 500 (NYSEARCA:SPY) at the close of Q1. Finally, over recent weeks we have seen a question raised in the trading of stocks and the ETFs measuring them like the SPDR Dow Jones Industrials (NYSEARCA:DIA) and the PowerShares QQQ (NASDAQ:QQQ). We've seen real evidence as well in the forecasts and actions of cyclical companies like Caterpillar (NYSE:CAT) for instance. I've noted several times that Q1 EPS estimates have been reduced significantly over the course of the first quarter. There are still factors working in favor of stocks like capital flows into equity funds, but I believe those are tiring now or will tire as evidence mounts against the economy.

Today, Weekly Initial Jobless Claims and the Challenger Job-Cuts Report each offered a tough chew. Weekly claims for the period ending March 30, reported today, increased by 28K and reached 385K. That's dangerously close to that psychology threshold of 400K almost overnight. The four-week moving average for the data point increased by 11,250, and rose to 354,250. The meaningful change in the moving average reflects a significant change in the economic direction.

The Challenger Gray & Christmas Job-Cuts Report showed that announced corporate layoffs increased 30% against the prior year comparable period. March job cuts totaled 49,255 in the period. It was the second straight month and the fourth in the last six to show poorly against last year. It likewise marks a change in economic trend, and it cannot be ignored. Retailers led March downsizing, with Sears (NASDAQ:SHLD) and its Kmart unit, as well as Best Buy (NYSE:BBY) and J.C. Penney (NYSE:JCP) reducing workforce. Blockbuster closed down altogether. That reflects poorly on consumer spending and the condition of Americans generally, despite the real estate recovery and stock market gains.

The market can only ignore the economic message for so long. It is being pounded in now, with the ISM Manufacturing Index also weighing on us this week. Economists with cautious views have born a cost with momentum driven market mavens coming down critically upon them. However, this market voice, which also offers an economic perspective, has given you the full picture for stocks and the economy, and at times the two have diverged. Can you understand that message? The comments that follow below here will show mostly a perspective based on simply the title of this article, but you who have read through have understood the message and I welcome you to continue receiving it.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.