The past few days we saw economic data that was pretty bad. Really no way to sugar-coat it, from housing to the PMIs of the world, the data was not great. The kicker, and the one that really matters, is the jobs data. The ADP report was the sucker-punch.
A slowing global manufacturing sector is not a strange phenomena. We knew the effects of the tsunami and supply chain issues were going to be seen around this time of the year. This was factored in already, that is why the market was shrugging off most of the data.
Today should have been a follow-up day to positive market action from yesterday, but the ADP report knocked us. The report really took me by surprise. I monitor the web consistently, and try to pay attention to any subtlety that would hint to a butterfly-effect of positive/negative outcomes, and nothing hinted to such a poor number. (I am not going to try to speculate as to why it was so poor cause I do not know. Maybe their survey was corrupted by the supply chain issues, giving a false expectation or causing a temporary hiring slowdown.)
I still think the economy is in good shape. (The data still tells the tale of sustainability, despite the spectacular natural event that proved to slow manufacturing.) Some recent data that has been getting little attention is that SP500 companies have a combined $960Billion waiting to be used. The payout ratio of companies is at its lowest since 1936! (There is going to be a flood of money coming to equity holders.)
Another very positive, forward looking, development is the action China is taking. (I linked it earlier, but it is a very important fact.) China has signaled to the world that they will not see a hard landing, and use their awesome cash hoard to clean up its fiscal problems. This will allow their economy to re-accelerate much quicker then anyone is factoring in.
This type of sucker-puck may take time to wash-out. Profits should be strong enough to find support around 1290-1300, but we many need to see a few positive employment reports before the market can kick into gear again.
In the mean time, I am looking to play POT, ATI, IBM, AAPL, GOOG, ITRI, DIS, SU and others when the time is right.
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