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. 

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