Last week, I wrote an article entitled "This Apple High Cannot Last," based on evidence of a deteriorating domestic economy via constant flow of economic data. Eventually, investors had to remember that Europe is in recession and is important to the global system (including to us) and that Apple Inc. is not the market. Still, after the company's results last week, investors across the market celebrated with reckless abandon.
Well, it seems that the weekend allowed the Apple high to fade, and new disappointing data Monday showing inadequate consumer spending and a muddling Middle America seems to have set things straight. And for those who have been in denial about Europe, Spain was reported as having fallen into recession too.
Monday's market movement has the SPDR Dow Jones Industrial Average (NYSE: DIA), the SPDR S&P 500 (NYSE: SPY) and the PowerShares QQQ (NASDAQ: QQQ) all lower, with the higher beta indices leading the way (Russell 2000 High Beta ETF (NYSE: SHBT) down 1.6% into midday). Heck, even Apple (NASDAQ: AAPL) was retracing about 2% of last week's gains. Though Amazon.com (NASDAQ: AMZN), which contributed its own boost to last week's close, was keeping green.
Still, the broader weakness is simply the result of reality reaching investors in the form of softer economic news. The Personal Income & Outlays data for the month of March was reported this morning. Like many other recently reported data points, it showed a slowing of activity, namely in the form of lighter than expected personal spending. Consumer outlays rose 0.3% in March, but that was less than economists foresaw, based on Bloomberg's survey showing expectation for a 0.4% increase. It was also down from February's strong posting of a plus 0.9% increase.
Problematic to the investment equation, the growth was aided by higher prices. The Core Personal Consumption Expenditures (PCE) Price Index, which happens to be the Fed's favored inflation measure, increased 0.2%. While matching economists' expectations on the median, the increase marked acceleration from February's 0.1% increase.
On top of this troubling tune, the Chicago Purchasing Managers Index (PMI) was reported down in April. The survey of business managers fell to its 29-week low reading of 56.2, down relatively sharply from March's level of 62.2. Both production, new orders and inventories were lower. Employment improved, but let's not forget that this is a lagging indicator. Meanwhile, the Dallas Federal Reserve Bank reported its Manufacturing Survey, showing its Business Activity Index fell into negative territory in April (-3.4 from 10.8), indicating contraction.
If the domestic news was not enough for you, Spain's economy fell into recession in the first quarter thanks to burdensome austerity and widespread business caution on relative concerns. Representing the euro region's fourth largest economy, the contraction matters to the rest of Europe both economically speaking and politically, with elections playing out. Indeed, political risk is rising and represents an important and dangerous factor for investors globally.
The perfect storm of economic data was just too much for a market hung over and off balance on an Apple and Amazon driven high to repel Monday morning. Moving forward, it is my view that no matter what earnings reports are highlighted, the onslaught of weakening economic data flow will overcome the market mood. Thus, that old tune we all know, to sell in May and walk away, should play true this year too.