PowerTrend Brief: Signs of an Improving Economy as Washington Slow Walks the “Fiscal Cliff”

Even though we have moved another five trading days toward the end of 2012, with only 10 left until we ring in 2013, last week saw all of the major stock market indices essentially unchanged. While all three closed the week in the red, the worst offender was the Nasdaq Composite Index that dipped a modest 0.3%. As had been expected, the “fiscal cliff” — that slow boiling pot I mentioned last week — has indeed started to roll as we near the end of December. Despite rounds of talks, thus far there has been little movement in striking a deal. With little in the way of economic news or earnings announcements in the first half of the coming five trading days, “fiscal cliff” conversations — or lack thereof — once again will take center stage and make for a bumpy week.

Recapping last week, economic data was light in terms of flow, but there were some items that raised eyebrows. First, while auto production rose in November, retail sales, excluding autos, were flat in November. While that reads to be a negative, we have to remember that gasoline prices have been falling at the pump during the last 12 weeks to hit an average of $3.30 per gallon, according to the Energy Information Administration. That’s a drop of 14% and it accounts for more favorable underlying retail sales data. Sifting through the same retail sales data also confirms data from Comscore (SCOR) and Nielsen (NSLN) that indicate online shopping grew significantly year over year in late November. That’s also a confirming sign for my Always On, Always Connected PowerTrend.

While gas prices have been falling, likely meaning good things for United Parcel Service (UPS) and FedEx Corp. (FDX), the latter of which reports its quarterly results this coming Wednesday, food prices rose in both the producer price and consumer price indices for November. As we start to realize the effects of the summer’s drought, odds are we will continue to feel these effects until the next harvest. Watch when Darden Restaurants (DRI), General Mills (GIS) and ConAgra (CAG) report their results this coming Wednesday and Thursday. Rising food prices amid high unemployment and tight disposable income have been a cornerstone for subscribers of my PowerTrend Profits newsletter.

Domestic manufacturing rebounded in November following Hurricane Sandy, as evidenced by the 1.1% rise in Industrial Production. Both manufacturing and total industry capacity utilization figures released by the Federal Reserve climbed month over month and are back in line with August-September figures. While that’s a good sign, we have to remember that those utilization readings remain well below levels that suggest employment levels are tight.

The notion of an improving domestic manufacturing economy was supported by Markit Economic’s flash reading of U.S. manufacturing in December. Each month, Markit releases a number of figures that pertain to purchasing mangers’ activity known more commonly as a purchasing managers index (PMI). The early reading of 54.2 in December, up from 52.8 in November, points to an improving manufacturing landscape in the United States. Similarly, Markit also shared its flash reading for China’s manufacturing economy. Much like here at home, China’s manufacturing figure was up month over month in December. That data point bodes well for subscribers to my ETF PowerTrader trading service, since we already have made investments in China and the emerging economies.

Back on the domestic front, this week we’ll get three takes on the domestic manufacturing economy in the form of the Empire Manufacturing Index (Monday), the Philly Fed Index (Thursday) and Durable Orders for November (Friday). We’ll also get the latest snapshot on the domestic housing market.

To read my e-letter from last week, please click here.

Smith & Wesson (SWHC) PowerTalk Interview
In my latest installment of PowerTalk, I speak with James Debney, president and CEO of firearm manufacturer Smith & Wesson Holding Corp. (SWHC). During the one-on-one conversation, we talk about the strong demand that has driven the significant growth in the company’s revenue and earnings in recent quarters. Favorable industry figures in October and November suggest that growth is far from over and that Smith & Wesson’s focus on its M&P line of products should continue to deliver share gains. To listen to that installment of PowerTalk, click here.

Remembering Those in Connecticut
As we get ready for the trading week ahead, let’s be sure to keep all those suffering from the recent mass shooting in Connecticut in mind, particularly with Christmas just over a week away. Please remember to keep those families in your hearts and prayers this holiday season.

Sincerely,

Chris Versace
Editor, PowerTrend Brief

Here’s a more granular look at what investors should be watching and listening to during the next five trading days:

Monday, Dec. 17
Empire Manufacturing Index (December)
Diamond Foods, Inc. (DMND)
Shuffle Master (SHFL)

Tuesday, Dec. 18
NAHB Housing Market Index (December)
FactSet Research Systems (FDS)
Jefferies Group (JEF)
Learning Tree International (LTRE)
Oracle Corp. (ORCL)
Steward Enterprises (STEI)

Wednesday, Dec. 19
MBA Mortgage Index (Weekly)
Housing Starts & Building Permits (November)
Accenture Ltd. (ACN)
Bed Bath & Beyond (BBBY)
FedEx Corp. (FDX)
General Mills (GIS)
Heico Corp. (HEI)
Navistar International Corp. (NAV)

Thursday, Dec. 20
Weekly Initial & Continuing Jobless Claims (Weekly)
GDP – Third Estimate (3Q 2012)
Existing Home Sales (November)
Philadelphia Fed Index (December)
Leading Indicators (November)
FHFA Housing Price Index (October)
ConAgra Foods, Inc. (CAG)
Carnival Corp. (CCL)
Discover Financial Services (DFS)
Darden Restaurants (DRI)
KB Home (KBH)
CarMax Inc. (KMX)
Nike Inc. (NKE)
Paychex Inc. (PAYX)
Rite Aid Corp. (RAD)
Research in Motion (RIMM)
Scholastic Corp. (SCHL)
Tibco Software Inc. (TIBX)

Friday, Dec. 21
Personal Income & Spending (November)
Durable Orders (November)
Michigan Sentiment Index – Final (December)
Walgreen Co. (WAG)