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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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  • Lot's to Fret About By: Charles Payne 0 comments
    Jun 3, 2010 2:06 PM | about stocks: F, NSANY, DDAIF, TM, HYMLF, HMC, BP
    Jitters the day before a jobs report number is common in regular market conditions (you know, when the world isn't falling apart), but today a multitude of concerns are simmering to a slow boil. Those concerns include minute to minute issues:

    > Jobs report
    > Validity of jobs report
    > BP situation
    > Euro situation
    > Middle East situation
    > North Korean situation
    > China situation

    Then there are longer term issues:

    > Deficit spending
    > Massive debts
    > Higher taxes
    > Draconian business rules
    > War on prosperity
    > Ceding U.S. sovereignty to the G20, UN, or cut to the chase and just sell the country to China directly

    This morning on "Varney & Co." Mark Vitner, Senior Economist at Wells Fargo (WFC), said he expects a second half decline in U.S. economic growth. I put a question to him about the theory the U.S. consumer was prepared to take the growth baton from government spending. This is something I'm dubious about, and Mark wondered how it could happen, pointing to a lack of real demand throughout the current recovery. I consider Mark one of the smartest guys on the Street. Now that doesn't mean several things can't happen.

    * Maybe the consumer steps up after all as they have carried the world on their backs years longer than logically expected after the last recession.

    * Maybe consumers fade into a foxhole but the stock market still rallies on low expectations and positive public relations.

    I'm not sure where the economy goes in the immediate term but I do know any good news, even news coming from smoke and mirrors, will be played up pretty good. The thing is if U.S. consumers falter, where does that leave the rest of the world? One reason stocks have turned south are mounting worries about China's economy slowing. It's ironic in many ways because two months ago the worry was China's economy was growing too fast. Coupled with the stronger dollar, these worries are punishing commodities and commodity-related stocks. I think this group of stocks is extremely oversold.

    Economic Data

    Today's data was mixed, with initial jobless claims still too high for any elected official (save for the Governor of North Dakota) to take any victory laps. The ISM Service sector report barely missed consensus, while Factory Orders were a disappointment.

    ISM Service

    Headline number of 55.4 was just a smidge below consensus of 55.9. Employment was a plus, edging higher month over month, but exports stumbled hard. In addition to the notion U.S. consumers are going to lead the way, many economists and the White House believe exports will make the difference as they will double over the next five years.
     
     
     
    Factory Orders

    At 1.2, the headline number missed consensus by a large margin. The worrisome part was the dive in orders excluding transportation.
     
     
    Petroleum

    Today's petroleum data was the best in a while. Crude oil was drawn down by 1,902,000 barrels versus the consensus of unchanged, and gasoline by 2,647,000 versus the consensus of 500,000.
     
     
    Speaking of petroleum, our Oil Sector Analyst Conley Turner has picked a winner in the space in an article on www.wstreet.com

    Additionally, our Retail Sector Analyst Brian Sozzi has broken down the April same-store sales results and offered up likely winners and losers going forward. The article could also be viewed at www.wstreet.com

    Hauling Through May
    David Silver, Research Analyst

    The monthly results for auto sales in the United States were released yesterday. The results were better than I had expected as strength in trucks and SUVs propelled sales higher. In a big change from previous months, Chrysler was the strongest performer, seeing sales improve almost 33% compared to May of 2009. The quarter was good for General Motors and Ford as well, however, it is important to remember that General Motors was teetering on the edge of bankruptcy, and Chrysler entered into bankruptcy, on April 30 of last year. Ford and General Motors gained market share during the month, with Ford's market share improving to 17.8% (17.4% for 2010) and General Motors' market share (despite shedding four brands) improved to 20.3% (19.1% for the full year). Sales of cars and light trucks jumped 19% in May to 1.1 million vehicles according to Autodata Corp. The annualized sales pace for the month was 11.68 million vehicles. That's up from the year-ago figure of 9.86 million and April's 11.2 million rate.
     


    As we mentioned earlier, the strength in trucks and SUVs propelled shares higher, with sales of Ford's F-Series pickup trucks jumping 49% to 49,858, their highest since March 2008. Toyota saw sales of its Tundra pickup climb 32%, while sales of GM's Chevrolet Suburban SUV doubled compared to May 2009. In total, sales for General Motors increased 16.6% year over year, however, including only the core 4 brands (Buick, Cadillac, Chevrolet, GMC), sales improved almost 32% year over year. Year to date, total sales have increased 14.0% year over year, while sales of the core 4 have improved 31.0%.
     
     
    Moving through the next few months, the industry will continue to see strong year over year growth as the industry is cycling easy comparisons (Chrysler entered bankruptcy at the end of April 2009 and GM followed suit in June). The real litmus test for the industry will be sequential improvement and incentives. I expected sales during May to taper off with truck and SUV sales remaining relatively flat, however, sales of trucks and SUVs were much stronger than I expected; when combined with the growth in fleet sales, the results surpassed my expectations for month. I had modeled for an industry SAAR of approximately 11.2 million vehicles. The chart above shows the rollercoaster the industry has been on over the past year. Chrysler released its new Jeep during May (marks the first vehicle release since exiting bankruptcy), and hopes are that the new Fiat 500 will usher in a new era for the car maker; I am not going to hold my breath though.

    Refer to our website at www.wstreet.com for the remainder of the piece.


    Disclosure: None
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