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Wall Street Strategies has been providing independent stock market research since 1991 to individual, retail and institutional clients through a balanced approach to investing and trading. Charles Payne, our founder and chief analyst, is routinely sought after for his stock market, political,... More
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  • AN ENCOURAGING SESSION ON MIXED DATA - By WSS Research Desk 0 comments
    Feb 20, 2014 3:30 PM

    By Carlos Guillen

    Quite encouragingly, equity markets are trading near the highs of the session, with the Dow Jones Industrial Average up over 100 points. While the early part of the session was negatively affected by manufacturing data from China and Europe and mixed economic data from here at home, investors found some encouragement on U.S. manufacturing data, which jumped to its highest level in close to four years.

    For starters Initial Claims data posted earlier today was somewhat of a disappointment but at least its direction brings a bit of a relief. According to the Department of Labor, initial claims during the week ended February 15 totaled 336,000, decreasing from the 339,000 revised figure reported for the prior week and landing above the Street's estimate of 335,000. The initial claims' four-week moving average was 338,500, increasing from the prior week's average of 336,750. While this metric is showing that it is stabilizing at the moment, it is finding some difficulty falling further below 350,000, which is where economists see stronger jobs growth. So far it is becoming apparent that the jobs market is reaching a point of stagnation, which is that there are less layoffs but there is also less hiring.

    Perhaps a bit encouraging today was that increases in the cost of living are not supporting the rumors of economic deflation. According to the Department of Labor, the Consumer Price Index (CPI-U) in January increased month-over-month by 0.1 percent; this compares with the Street's consensus estimate calling for a 0.2 percent rise. Excluding food and energy contributions to the price index, core CPI increased month-over-month by 0.1 percent, matching economists' average forecast. Overall inflation still remains rather low, and while we do not believe there is deflation taking place, there is still a case for disinflation. Fed officials are carefully monitoring inflation as they wind down their bond-buying program. As it stands, with full year inflation of 1.62 percent, the Fed is not quite meeting its inflation target of 2 percent. This may reduce the likelihood of tapering in the Fed's next meeting, but that remains to be seen.

    Another report showed that the index of leading indicators improved and appears to be maintaining a favorable short term uptrend, but landed below expectations. According to the Conference Board, its Leading Economic Index (NYSEMKT:LEI) during January increased month-over-month by 0.3 percent to 99.5, worse than the Street's consensus estimate calling for a 0.4 percent month-over-month rise. Nonetheless, it is encouraging to see the consistent uptrend in the data, which does suggests that the economy will remain in growth mode for the first couple of quarter this year.

    Another bit of discouraging data today was that manufacturing in the Philadelphia region contracted this month. According to the Federal Reserve Bank of Philadelphia, its diffusion index of current activity February result landed at -6.3, lower than the Street's consensus estimate of 7.4, decreasing from the 9.4 reached in January. Given that a level above zero indicates an economic expansion, this represents the first time in nine months of contraction in the region covering eastern Pennsylvania, southern New Jersey, and Delaware. Two days ago, manufacturing data from the New York region also showed a rather steep reversal as the general business conditions index February result landed at 4.5, lower than the Street's consensus estimate of 7.5, sharply decreasing from the 12.5 reached in January. The combination of these data points, which are heading in a negative direction, is indicating that there may be weaker than expected growth in the economy in this first quarter.

    In essence, the economic data presented today was mixed, but the main driver of stocks today was Markit's U.S. flash purchasing managers index, which jumped to its highest level in almost four years, rising to 56.7 in February. Moreover, the employment index component improved to 54.0 from a final January reading of 53.2, extending the current period of employment growth across the sector to eight months.

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