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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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  • Laying A Strong Foundation For Q3 By Jennifer Coombs 0 comments
    Sep 2, 2014 1:40 PM

    By Jennifer Coombs, Research Analyst

    It's a rather interesting start to the month of September as both the S&P 500 and the NASDAQ have managed to touch new highs, while the Dow is being dragged lower by several components. Today's weakness in the Dow Jones Industrial Average is primarily thanks to declines in Boeing (NYSE:BA), Exxon Mobil (NYSE:XOM), Microsoft (NASDAQ:MSFT), Intel (NASDAQ:INTC) and Chevron (NYSE:CVX) shares. Tensions across the globe remain iffy while the PMI readings across Europe are really ugly for the month of August as total Eurozone output is currently at a 14-month low. Once again, US domestic data is coming in stronger than expected as industrial activity is showing some signs of recovery.

    Firstly, the overall construction spending in the US showed nice gains in July: spending rebounded 1.8% after a 0.9% decline in June. While all broader construction categories advanced, the increase for the month was led by the public sector, which was up 3.0% after a 1.8% decrease in June. Private, nonresidential spending also rebounded with an increase of 2.1% in July after slipping 0.8% the month before. The private residential category gained 0.7% after a 0.4% drop in June. On a year-ago basis, total outlays were up 8.2% percent in July, compared to 7.0% in June - so there is sizable strength over last summer. Ultimately, this latest data should help boost the third quarter GDP estimates. There is a lot of volatility in construction, but the residential momentum is very encouraging in our view.

    In the same industrial-sleeve, Markit and ISM released their final readings for the US manufacturing Purchasing Managers' Index (PMI); both were much better than expected. Markit noted that growth in the manufacturing sector accelerated in August to a final reading of 57.9; slightly lower than the mid-month reading of 58.0, but better than the July final reading of 55.8. The agency reported particular strength in new orders, namely in exports, as well as strong results in production and employment. The ISM manufacturing composite index, on the other hand, is a diffusion index calculated from five of the eleven sub-components of a monthly survey of purchasing managers at roughly 300 manufacturing firms nationwide. ISM's sample is broader and more closely watched than Markit, but points to the same strong trend in August. ISM's composite index jumped to 59.0 from 57.1 in July, and was far better than consensus' estimate of 56.8. New orders were the most impressive part of the August report, rising to 66.7 from an already strong reading of 63.3 in July. The production component was also really good at 64.5 compared to July's reading of 61.2 and employment remains steady at 58.1 down from 58.2 in July. Below is a chart showing both Markit and ISM's readings for the manufacturing PMI over the last year. Possibly, the most encouraging aspect of this chart is how both measurements have moved higher in tandem over the last two months. Both of these reports ought to raise the outlook for manufacturing, a sector that is helping to drive the economy forward and boost third quarter GDP expectations.

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