Sunday, June 30, 2013

Performance Update for Week of 6/24 - 6/28

Jun '13 Mfr. ISM & NFP Projections ...

We have our projections for two of the market moving economic data that are being released this week, manufacturing ISM and the BLS employment report.

We estimate manufacturing ISM of 51.6, higher than the 50.5 consensus.  After seeing improvements in most of the regional manufacturing survey results, especially in the Philadelphia Fed survey, combined with last month's very disappointing 49.0, we think we will see a slightly bigger bounce in June than what many economists have estimated.  We note that our so-called more optimistic projection is not an indication of faster economic growth.  The manufacturing ISM index will be released on Monday (7/1).

BLS employment report is scheduled to be published on Friday (7/5).  We estimate NFP change of only +125K, significantly below the 161K consensus.  Increase in non-seasonally adjusted initial jobless claims, along with not-much improvement seen in regional business surveys, we think can be viewed as indications of a disappointing June employment report.  Of course, given the ongoing multi-year trend in more-than-normal economic data revisions, who knows, maybe the May NFP figure will be revised down, making the June NFP change look a bit better.  But again, we expect a miss.

Other economic data to be released in the upcoming week include the ADP employment report, the Challenger Job-Cut report, non-manufacturing ISM, and initial jobless claims. 

Saturday, June 22, 2013

Performance Update for Week of 6/17 - 6/21

The equity market would certainly like to forget about last week as S&P 500 declined more than 2%.  

With indications that the Fed may begin tapering in Q4, the 10-yr yield jumped 40bps from last week and ended the week nearly 50bps above where it was last month.  Such a reaction is due to worries that the Fed will begin to end its monetary easing policy.  Higher rates are not due to a much better economy, in our opinion.  Inflation remains very low, which basically shows that overall demand has not increased enough to push prices higher.  As we have said many times before, the improvement in corporate profitability that we have seen the last few years has been driven mostly by cost cutting measures, not by higher demand, which would have led to higher prices and more hiring.  Wage growth has remained stagnant.  

So, overall, the jump in rates was a reaction to what many think will be the removal of the stock market and the economy from their "life support system".  Of course, the higher rates impacted utilities, consumer staples and healthcare sectors a bit more.  But, in our opinion, once the overreaction fades away, and participants understand that higher rates were not driven by expectation of faster economic growth, we could see more money going into those defensive sectors.  As displayed in the last table, staples and healthcare have outperformed the overall market YTD and since March '12.  Simply put, what may be taking place is the realization that while QE has inflated asset prices,  it has not necessarily helped the economy.  And once a strategy is ineffective for a long period of time, the thought of abandoning it has to come to the forefront, which then leads to the equity market slowly trying to discount that ever-present QE premium.  

Regarding some economic numbers, we did not mention last week that the initial jobless claims were disappointing.  They came in at 354K, significantly above the 340K consensus and prior week's 336K (which was revised up from 334K).  The upcoming week will be a busy one as May durable orders, new home sales, and personal income growth will be reported.  In addition, the weekly initial jobless claims, along with Q1 GDP growth, Chicago PMI and the final University of Michigan consumer sentiment will be released.  Reactions to this data will likely create more volatility even though many will also be waiting for the June job numbers due out the day after the 4th of July. 

By the way, on Friday after the close, it was reported Facebook (FB) admitted that a bug (which supposedly has been fixed) exposed email addresses and telephone numbers of possibly 6MM users to other people to whom they may have been directly or indirectly connected.  This news along with what we have learned regarding the NSA and its Prism project, make us think that we are nearing an inflection point where benefits of all of this non-private social media (at times forcibly, and many times unknowingly, non-private) no longer outweigh their various costs.  Like it or not, want it or not, many are getting 'linked' to one another only for the benefit of advertisers.  At least LinkedIn (LNKD) services have the potential of providing very good benefits: jobs! 

Thursday, June 20, 2013

Is good news bad news or is it good news?!

Good news remains bad news for the equity market.  The Philadelphia Fed survey and existing home sales came in above expectations, but the market said 'no thanks' and continued to decline.  S&P 500 is down another 1.4%.

What we consider as the most reliable regional manufacturing survey, the Philadelphia Fed survey, came in above expectations.  The index for June was at 12.5, up from -5.2 in May, and higher than the Street's -1.0 estimate.  Some important sub-indexes showed improvement.  They include new orders (16.6 vs -7.9) and shipments (4.1 vs -8.5).  The decline in inventories, to -6.6 from 4.1, might be a good sign in the short term.  It could also be partially responsible for the improvement in new orders.  Employees sub-index still showed continuing decline, although at a slower pace.  It improved to -5.4 from -8.7 in May.  Given the average workweek sub-index's move into positive territory (0.8 from -12.4), we could see more slight improvement in employment next month. 

Existing home sales for May came in at an annual rate of 5.18MM, above the 5.00MM consensus and higher than April's 4.97MM rate.  More than 85% of sales in May were of homes priced at $500K or lower.  However, in terms of the Y/Y sales growth, homes priced above $500K were the strongest.  Months supply was pretty much unchanged at 5.0.  We note that the 30-year fixed mortgage rate has increased to over 4.00% from around 3.75% about a month ago.  For this reason, June existing home sales figures (to be released in July) may not turn out to be this impressive.  

We have stated this on twitter and also in previous posts - as the economy shows improvement (although not at an impressive rate), QE tapering or natural increase in rates will begin to discount the QE premium that has been priced into the equity market for some time; and this could get the market closer to a valuation based on fundamentals.  Bernanke is in a tough spot.  Based on projections released by the FOMC (which we discussed in our previous post), the federal funds rate could move up to between 2% and 3% in 2015.  The current decline in the equity market could be a sign that it is trying to price in expectations of higher rates.  

S&P 500 has left the linear regression level far behind.  It is now also below its both downward sloping 50-day and 10-day EMAs.  It has also gone below the 1610 support level we mentioned in our last post and is approaching the next Fibonacci retracement level which still stands at 1595.  If the market closes this low today, we could see a dead-cat bounce on Friday or next week.  After all, a two-day 3% decline in the stock market is considered significant, especially with the QE policies still in effect.

Negative reaction to the FOMC statement

The equity market dipped after the release of the FOMC (Federal Open Market Committee) statement and the Bernanke press conference.  More specifically, S&P 500 closed down 22.88 points, or 1.39%.  

In our opinion, the behavioral and psychological strategy implemented by the Fed is coming back to bite it you-know-where.  It has gotten to a point where every word that is said or printed will move the market.  As an example, just because the word "taper" or "tapering" was not in the statement, the market's reaction to FOMC was positive initially.  

Even so-called journalists with their so-called close ties and connections with the Fed (which is just another part of the psychological plan, similar to the government's very consistent and timely 'leaks') are becoming stars for posting market-moving articles about what might be said by Bernanke.  

Unfortunately for the bulls, even though tapering was not used, the Committee did state that it "sees the downside risks to the outlook for the economy and the labor market as having diminished since the fall."  Simply put, this means that the necessity for further easing is diminishing.  The Fed won't just turn it off tomorrow, but it is trying to tell the market, in a very nice way, that we are getting closer to pushing that 'off' button.  Yes, the quantitative easing will continue, but probability of tapering continues to increase.

However, although the Fed stated that risks to the economy have gone down, we note that many of the latest numbers indicate a slowdown.  For this reason, we think the Fed is stuck between a rock and a hard place.  Returns on such unprecedented easing, in economic terms, are not something to write home about.  Certainly, the stock market has hit new highs and commodity prices are increasing again (not mostly driven by higher demand), but economic figures are giving us a different story.  Of course, the Fed remained consistent in blaming the lawmakers for the slow economic growth by saying "household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy is restraining economic growth."

FOMC's projections are below.

           Source: Federal Reserve Board and FOMC (

As you can see above, FOMC tightened the range of real GDP growth for 2013 by lowering the high-end of the range.  It did the same for 2015.  However, it upped its 2014 estimate, and did not change its "longer run" estimate.

The table above also shows that unemployment estimates for 2013 - 2015 were brought down slightly, which is good news; but not good for the QE-driven equity market.  

With the slightly more optimistic real GDP and unemployment projections, we were surprised to see that the FOMC actually lowered its 2013 - 2015 inflation estimates.  Just by looking at the 2014 GDP and unemployment revisions (of which, both indicated more optimism), one would think that headline and core inflation would also move up; but again, the FOMC expects inflation rate to actually decline.  

We may be wrong, but in our opinion, such 'discrepancy', could be a sign of the Fed being really stuck in a tough situation.  It appears that while it wanted to let the market know that it thinks the economy is improving, it also wanted to make sure the market understands that just in case it does not, given such low levels of expected inflation, it can continue its QE policies.

From a technical standpoint, S&P 500, closing at 1628.93, remains within striking distance of going below its linear regression level of 1625.  In addition, although it stayed above its 1616 50-day EMA, it did dip below the 1635 10-day EMA level.  It appears that 1610 is the next support level.  Lastly, after Tuesday's nice gain, it looked like the MACD was on its way to reversing its downward trend, but today's decline, put a stop to that, at least for now. 

Monday, June 17, 2013

Equity market bouncing very nicely this morning ...

Let's start with the good news.  First, there's an overall expectation that this week's FOMC will sound more dovish.  Second, the latest Housing Market Index (HMI) of 52 for June was the highest it has been since 2006!  Third, the first two pieces of good news have pushed the S&P 500 up nearly 1%.  

The not-so-good news is the Empire State Manufacturing survey, as although it came in much higher than expected, seven of its nine sub-indexes declined and were either at 0.00 or in negative territory.  The overall index came in at 7.84, a huge improvement from last month's -1.43, and certainly above the expectations of no change.  We find it very difficult to explain such an encouraging figure when new orders, shipments, unfilled orders, inventories, number of employees, and average workweek, all declined significantly.  Number of employees sub-index dropped from 5.68 to 0.00, and all other sub-indexes stated earlier declined further into negative territory.  By the way, the 6-month forward looking index, along with what we consider as important sub-indexes, was also lower.  

We would like to say "don't let the smooth taste fool ya", but then again the equity market is already up 1% this morning.  Regarding the names that we follow, AVID is up 0.5%, BCOR up 1.8% and nearing its 52-week high, FB remains near where we think it should be valued at, but is up 2%, and IACI is approaching $50, up 1%+.

Friday, June 14, 2013

PPI, industrial production, and consumer sentiment all miss ...

Overall, today's economic figures were far from being impressive.  

At least based on the headline PPI number, the hope of tapering the taper talk was dimmed a bit.  May PPI increased 0.5% from April, higher than the economists' 0.2% estimate.  Excluding food and energy, the m/m increase was in-line at 0.1%.  Of course, many look at the figure that excludes food and energy due to the volatility of those two groups.  But then again, given the less elastic demand of food (or comparatively speaking, the inelasticity of demand for food), we think changes in food prices will impact everyone and should be taken into account.  Food prices alone went up 0.6%, mostly driven by increase in egg prices.  We wonder if different government organizations will now suddenly launch 'health campaigns' against egg consumption!  Crazier things have happened!

Energy prices increased 1.3%, driven mainly by gasoline prices.  This goes along with our assumption about the retail sales numbers that we mentioned earlier this week; however, those retail sales numbers did not verify the assumption.  We were probably one month too early.  We could see higher gasoline prices impact CPI in June, therefore also having an impact on June retail sales.  If next week's May CPI comes in a bit high though, then hopes of tapering the taper talk, especially within the FOMC statement, could be dimmed even further.

Industrial production remained pretty much unchanged, which is what we had anticipated.  However, that was slightly below the 0.2% consensus.  We note that the April m/m change was revised to -0.4% from -0.5%, which makes the 'adjusted' consensus for May 0.1%.  But again, the expectation was a bit high.  We also expected a miss on capacity utilization, which did take place, but the miss was around 20bps more than we had projected.  Capacity utilization came in at 77.6%, below our 77.8% and the Street's 77.9%.  The no-change in production, accompanied by nice decline in capacity utilization, is not good news when it comes to the state of employment, in our opinion.  

The University of Michigan consumer sentiment figure also missed expectations; 82.7 vs 84.5.  

With disappointing economic numbers, the market is barely down, especially given the fact that it spiked nearly 1.5% yesterday.  Again, the Hilsenrath impact cannot be ignored.  We will see if Mr. Hilsenrath has written an even more dovish version to be published just in case next week's CPI numbers come in too high.  We wouldn't be surprised, as these days (or the past 3+ years), Bernanke and Hilsenrath have done a very good job implementing behavioral and psychological strategies to 'force' most to take more risk without much fundamental or economic justification. 

Thursday, June 13, 2013

Herr Hilsenrath demonstrates heroism once again ...

Well, as we assumed on Tuesday night (, Mr. Hilsenrath went to work and published another great dovish article to help everyone relax a bit.  The result is today's huge turnaround with the S&P 500 jumping nearly 1.5% and closing at 1636.4.  

Although such a move was very easy to anticipate, as we did, we must ask who (or what group) knew exactly when Hilsenrath was going to publish this?  The market jumped before the article came out, and one cannot say it was driven by the 'good enough' economic news.  Whether it is economic data or the publishing of an article by an 'influential' 'journalist', the ones that get the info first always win.  

From a technical standpoint, MACD turned up a bit today, so the upwards trend, which has been in the market since mid-Nov. '12, has not changed yet.  Slope of the regression line increased slightly, moving the latest linear regression level to 1619.9, from 1617.  

In addition to Hilsenrath's article, a miss in tomorrow's PPI, industrial production, or University of Michigan consumer sentiment could further taper the talk of tapering, which could push the equity market a bit higher.  No one wants good economic data!  So it is not too difficult to realize that the market remains very dependent on the Fed. 

Update on Economic Data ...

Initial jobless claims came in better than expected with no revisions for the prior week; 334K (down 12K from prior week) vs 350K. Of course, the seasonal factor did its job as the non-seasonally adjusted figure was up more than 37K from the prior week. But as they say, these seasonal adjustments get cancelled out over the year; at least we hope so. 

Headline retail sales m/m change of 0.6% was higher than the 0.5% consensus. However, excluding auto and gas, the 0.3% increase was inline with expectations. 

The equity market is responding as well as it can with the S&P 500 being up 0.12%. 

Wednesday, June 12, 2013

BCOR: H&R Block Misses Q4 Expectations

H&R Block (HRB) disappointed on the top and bottom-line with EPS of $2.54 and revenues of $2.2bil, missing the $2.60 and $2.3bil estimates, respectively.  While this, along with profit taking, may explain Blucora's (BCOR) decline lately, it will likely push the stock down a bit further.  Of course, BCOR is up 18.2% since we suggested it, compared with S&P 500's 6.9% gain. And BCOR did hit its 52-week high of $18.92 in late May. 

When it comes to BCOR, we believe the HRB miss will be forgotten about soon.  As a reminder, BCOR's fiscal calendar is the same as the regular calendar.  For this reason, most of BCOR's tax services revenues were already reported in its Q1 report, and were impressive.  In addition, the very narrow-range guidance that the Company provided for Q2 tax service revenues, $23.0MM - $23.5MM, shows that management had a pretty good idea about revenues coming in during Q2.  For this reason, the risk of BCOR missing on the top-line in Q2 is minimal.

May '13 Industrial Production Estimate ...

S&P 500 had another bad day, closing down 0.84% at 1612.5.  It also closed below the 1617 regression line that we touched on yesterday.  Of course, today's decline cut the MACD nearly in half to 2.44.  It is closing in on the zero line with the average still above it at 8.04.  The upward trend has not only stopped, but it is set to turn into an effective downward trend unless helped by some economic data and/or the Fed.  Retail sales and initial jobless claims data will be released tomorrow, followed by May PPI and industrial production on Friday.  

Again, we think May retail sales may have been helped with slight uptick in gasoline prices during the second half of May.  Auto sales will likely be flat after the nice 1% pop last month.  So, while the headline figure might come in-line or better than the 0.5% m/m change consensus, we think retail sales, excluding autos and gasoline, could come in slightly below the 0.3% consensus.  

Initial jobless claims are pretty difficult to project, especially given the seasonal factors applied and BLS' consistency with its revisions.  The consensus is 350K. 

Regarding Friday's industrial production number, given the continuing disappointment in ISM-manufacturing, we think it will come in pretty much unchanged at 98.76 (a mere 0.02% change) compared with April's 98.74.  The consensus is for a 0.2% change or 98.94.  Although most of the regional surveys' work week figures declined in May, we think given lower production, capacity utilization remained at 77.8% compared with economists' estimate of 77.9%.

Tuesday, June 11, 2013

Update ...

S&P 500 dipped around 1% on Tuesday as, very surprisingly, Japan paused central planning for a bit.  As we mentioned on 5/11, we believe the equity market is overvalued, partially due to the ever-present QE premium.  Of course, as is the case with any centrally managed/controlled economy and equity market, once those central planners see signs of economic weakness or not as much growth as desired, they begin to taper the talks of tapering.  Do not be surprised if this takes place sometime this week.  Who knows, Mr. Hilsenrath and Bernanke may be discussing variety of strategies each with behavioral impact on some institutional investors but certainly on 100% retail investors; or so they hope.  We still value the S&P 500 at around 1475.  We are not saying it will get there tomorrow or next month, but at some point, we think within the next 12 - 18 months, the reality of fundamentals will take over, no matter how many 'green shoots' or 'sugar highs' Bernanke throws at the market.

From a technical standpoint, at 1626.13, S&P 500 is not far away from going below its linear regression level of 1617.  Before getting there, it will have to break through and stay below the 'semi-support' level of 1625.  By the way, since we last discussed the MACD level being too high (5/22), it has dropped from 24.05 to 4.67 (as has S&P 500, from 1687 to 1626), but it remains below its average.  For this to reverse, we think MACD would have to start up-trending and cross above its average, which currently stands at 9.45.  One more thing on the technical side, the next level of the Fibonacci Retracement is around 1595, which if the market goes below, it can dip all the way to the 1540 - 1550 range.  But as is with technical analysis, everything can change very quickly.

Some potential market moving economic indicators being released later this week include the May retail sales, weekly initial jobless claims, May PPI and May industrial production.  

We think May retail sales may have been helped with slight uptick in gasoline prices during the second half of May.  Auto sales will likely be flat after the nice 1% pop last month.  So, while the headline figure might come in-line or better than the 0.5% m/m change consensus, we think retail sales, excluding autos and gasoline, could come in slightly below the 0.3% consensus.  

Initial jobless claims are pretty difficult to project, especially given the seasonal factors applied and BLS' consistency with its revisions.  Economists have projected a seasonally adjusted figure of 350K.  As usual, most of them are likely being 'uber conservative' with their estimates. 

We will post our industrial production and capacity utilization estimates by Thursday.

Friday, June 7, 2013

May '13 NFP Pretty Much In-line with Expectations ...

Our NFP projection track record certainly is not improving.  With all the news about NSA/PRISM and basically the 'Big Brother' watching over everyone (, who knows which numbers released by BLS are legitimate or accurate.  But the market continues to move based on these figures, so we have to pay attention.  May change in NFP was 175K, which included a net -12K adjustment in NFPs for March and April.  For this reason, that 175K change should be looked at as 163K which is pretty much in-line with the consensus, and significantly higher than our 95K guesstimate.  

The winners were jobs in retail trade and temp help services with net changes of +27.7K and 25.6K, respectively.  Jobs in healthcare, and leisure and hospitality also grew.  Weakness was evident in manufacturing, as jobs in that sector declined for the third consecutive month.  Government jobs also declined, but the rate of decline has been decelarating the last couple of months.

With all of those good numbers, average weekly hours remained flat, and hourly earnings went up by only a penny.  Wages continue to lack growth.

On the household survey, the number of people unemployed for more than 27 weeks increased in May, unlike in March and April.  Decline in unemployment duration of 5 - 14 weeks and 15 - 26 weeks was more than offset by increase in  the ones unemployed for less than 5 weeks.  

The U-6 unemployment rate went down 10bps to 13.8%, matching the March level and below last year's 14.8%.

S&P 500 futures up 0.65%.  Of course, such initial positive reaction is not a surprise.  We must note that the talk of QE exit strategy will resurface which could put the QE premium that is everpresent in the equity market at risk.  Lastly, watch what you do and say as the 'Big Brother' is watching you!

Wednesday, June 5, 2013

More Disappointing Economic Data ...

We got more bad economic news this morning as the ADP employment report along with April factory orders were disappointing, while non-manufacturing ISM barely beat the consensus.

ADP private payroll number for May was 135K, significantly below the 171K consensus.  The April figure was also revised down by 6K.  This is not good news regarding Friday's BLS employment report.  It appears that the Street's NFP change expectation of 167K might be a bit too optimistic.  Then again, our 95K projection is certainly out of the Street's 147K - 210K range of estimates.  

April factory orders improved 1% sequentially, but such improvement was still below the 1.4% expectation. In addition, the March figure was revised from -4% to -4.7%.  Monday's manufacturing ISM report certainly goes along with the factory orders.  

ISM non-manufacturing index of 53.7 was slightly higher than the 53.5 consensus.  New orders and business activity sub-indexes improved, while employment, exports, imports, and inventories did not.  Slowdown in inventory growth, combined with a too-high of an inventory sentiment (62.5) certainly indicates the uncertainty out there among many different types of businesses.  We think the dip in inventories may also explain increase in new orders, as backlog of orders remained flat.  

At least for the time being, bad economic news is impacting the equity market negatively.  We will see if the Beige Book, to be released later today, will provide any psychological healing.  S&P 500 is down 0.90%, while VIX is up nearly 7%.  AVID is getting worked, down 1% at $6.50.  BCOR is down 0.8% at $17.80, while FB continues to take a dump, down 1.4% at $23.19.  We note FB is now below the $23.50 valuation we gave it a long time ago.  We'll see if management can come up with some new gadgets and gimmicks to keep the stock above $20.  Lastly, IACI is up 0.5% at $48.50.

Tuesday, June 4, 2013

April Construction Spending up 0.4%

As a follow-up, we forgot to mention the other disappointing economic indicator released this morning, construction spending for April.  It increased 0.4% from March, but this so-called rebound was below the consensus of 1.0%.  We note that the decline in March was revised a bit lower, from -1.7% to -0.8%.  private non-residential outlays led the way with a 2.2% increase.  Growth in non-new housing, new housing, and MDUs (multi-dimensional units) slowed down a bit.  In fact, while new housing and MDU construction spending grew more than 1%, non-new housing plummeted by more than 3%.  Public outlays continued to dip, down another 1.2%, after declining nearly 3% in March.

Disappointing May '13 Manufacturing-ISM

Manufacturing ISM for the month of May came in below expectations.  The index value of 49.0 was bad news, bad economic news and not necessarily bad equity market news.  First, that figure was not only below the Street's 51.0, but also below our 50.4 projection.  Second, anything below 50.0 indicates lack of growth.  We are not saying slower growth; we are saying no growth, actual contraction.  The only sub-indexes above 50.0 were employment, exports and imports.  We must say that all of those sub-indexes did decline from the prior month.  

Let's look at it this way: new orders, backlog of orders, production, and deliveries all plummeted to below 49.0; while employment remained above 50.0 (at 50.1 and lower than April's 50.2), inventories went up to 49.0, exports declined to 51.0 (from 54.0), and imports, although 0.5 below last month's, remained high at 54.5 (comparatively speaking, of course).  We think this is bad news as it indicates lower current and future demand, higher costs (especially on the HR front), and a good chance of inventory build-up the next couple of months.  

Of course such bad economic news is good news for the equity market as long as the Fed keeps the market 'high'.  Many hope that bad economic news will push a Fed exit strategy further out, meaning that its QE strategies will continue going into maybe the next decade, or generation, or century.  

S&P 500 responded kindly to such bad economic news by closing up nearly 0.6%.  As long as such policies force many to 'invest' in riskier assets, such as equities, and as long as the value of those assets continue to get inflated (ignoring lack of income or wage growth), then everyone and everything is fine.  Well, of course that is not true, but maybe we can say: as long everyone thinks everything is fine, then everything is fine.  

Again, non-manufacturing ISM and ADP will come out on Wednesday (6/5), initial jobless claims on Thursday (6/6), and May's employment report on Friday (6/7).  On the employment front, our estimate is not even close to the Street's 167K.  We are expecting only a 95K increase in NFP for May.  Wednesday's ADP report will indicate if our NFP projection is a wacko one or not.  Let's hope the employment report will not disappoint, because the market could behave as it did last Friday (or even worse) after even just a slight miss.

Monday, June 3, 2013

ISM & NFP Projections; Performance Update for Week of 5/28 - 5/31

Although last week ended with S&P 500 down more than 1%, the month of May was a good one, up more than 2%.  But after hitting all-time high of 1687.18 on 5/22, the index gave back more than 3%.  Many are now discussing the gap between the fundamental-based valuation and where the market is currently trading at ... finally!  In addition, various Fed strategies are now being discussed more openly, with QE-exit being the main topic.  

As our weekly data indicate, consumer staples was a disappointment.  The 4% pull-back was mainly due to Procter & Gamble's (PG) and Coke's (KO) 6% and 5% declines, respectively.  PG went down as it released disappointing earnings; and KO, besides having to give back a bit after having gone up more than 17% since beginning of the year, the Company now has some doubters given increasing focus on obesity and somewhat slower pace of growth in China.  Then again, KO does have some 'healthy' products.  In addition, it is summer time and we believe the demand for KO products will remain strong.  Some favorable macro data have come in for the staples sector, at least for the short to medium term.  They include increasing CPI for food items combined with declining PPI for food items.  

This week will certainly be a busy one.  ISM manufacturing data for May will be released on Monday, followed by non-manufacturing ISM and ADP employment report on Wednesday (6/5), initial jobless claims on Thursday (6/6), and May's employment report on Friday (6/7).

We think tomorrow's ISM manufacturing will slightly disappoint.  We are expecting 50.4, a bit below last month's 50.7 and the Street's 51.0 estimate.  Data released by some of the regional Reserve Banks do point to a no-change to decline in manufacturing.  

On the employment front, our estimate is not even close to the Street's 167K.  We are expecting only a 95K increase in NFP for May.  If the market doesn't change much going into Friday's May employment report, let's hope the report will not disappoint, because the market could behave the way it did last Friday (or even worse) after even just a slight miss.