PowerTrend Brief: Data Confirms Growing Economic Weakness around the World

Chris Versace

Chris Versace is a financial columnist and equity analyst with more than 20 years of experience in the investment industry.

Welcome back to my existing readers and welcome aboard to my new ones. As expected, this past week was a slow one in terms of fresh domestic economic data, even though concerns continue to mount about the slowing of the global economy.

The preliminary HSBC China Manufacturing Purchasing Managers Index (PMI), a gauge of nationwide manufacturing activity, fell to 48.1 in March, compared with a final reading of 49.6 in February. A reading below 50 indicates a contraction from the previous month and March marked the fifth month below a reading of 50. Meanwhile, the picture in Europe continues to darken as Markit’s Eurozone Composite PMI fell to 48.7 in March from 49.3 in February. What concerned me most in the March Market report was that economic activity in France and Germany fell sharply month over month. Add to this decline the sequential dip in the composite PMI’s job index, which hit its lowest level in two years, and it is apparent that the euro zone has fallen back into a recession.

That data took the wind out of the market’s sail this week and it looks like the S&P 500 will have its first down week in several weeks. My immediate concern is that slowing global growth, coupled with rising prices for fuel and food (more on this next week), will result in a pause for the stock market, given the strong move year-to-date. The mid-term concern is that sluggish demand crimps companies’ top-line results, amid higher input prices. That combination could pressure margins and earnings expectations for the middle of the year. These two concerns are likely to result in Wall Street adjusting down its 2012 earnings expectations for the S&P 500, with consensus estimates currently at $102.41 per share vs. $97.38 per share in 2011.

Shoppers Feeling the Pinch at the Pump

Over the weekend, I ventured out with my family and hit some of the area malls, both the large enclosed ones, as well as the open-air strip malls that tend to be anchored by companies such as Best Buy, Dick’s Sporting Goods and Barnes & Noble. It seems we were not the only people out looking to pick up spring and summer clothes, given the warmer-than-usual, sooner-than-usual weather we are experiencing this year. All in all, mall and store traffic were better than I had expected, but the number of people with multiple bags were few and far between, even though there were ample sales and other promotional events going on. I chalk that selective purchasing up to the continued rise in gas prices that hit more than $4 per gallon in the DC Metro region this weekend vs. the national average of $3.88 per gallon, according to AAA’s Fuel Gauge Report.

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Despite signs of 25-70% off at Elite Jewelers, the traffic was thin at best and it was only modestly better at Zales. Dick’s Sporting Goods had consistent, if not long lines, while Nordstrom fared well, as did J.C. Penny, Aeropostale and a number of shoe stores. Ann Taylor had little traffic, despite offering 40% off select items, while Abercrombie & Fitch and Bare Escentuals had customers few and far between inside their stores. That dearth of foot traffic also was the case with both Victoria’s Secret and Banana Republic. At the strip malls, Best Buy had only a few of Apple’s new iPads left in stock but, despite having a good sale on LCD and LED televisions, there were few customers biting. Any eager consumer could have walked right up to the register at Best Buy. That situation was not the case at the T.J. Maxx, where the line wrapped around the store as shoppers lined their carts with sneakers and other discounted apparel. Already high gas prices can be expected to follow a seasonal pattern of rising further during the summer vacation season, so retailers should not expect any relief soon.

Nutritional Needs as We Live Longer Lives

In last week’s e-letter, I touched on the changing demographic picture in the United States when it comes to living alone and the growing rate among baby boomers. Sifting through the data, I found yet another confirming data point for my Living Longer Lives PowerTrend. By 2030, there will be roughly 72.1 million older Americans — persons 65 years or older — more than twice the number in 2000, according to the Administration on Aging (AoA). All in all, the AoA’s findings forecast people who are 65+ will represent 19% of the population by 2030. At the same time, World Bank data confirm that we are living longer lives as the average lifespan for U.S. citizens is 78 years of age, compared to the average life expectancy of 68 years for someone in the global population, according to the World Health Organization.

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A few months back, the Centers for Disease Control reported that more than half of U.S. adults use dietary supplements — a rise from 42% in 1988 to 53% in 2006. That steady increase fueled the growth of the supplement industry to a $27 billion behemoth in 2009, according to Consumer Reports. Two examples of the increased usage can be found among women over the age of 60. Close to 61% of women age 60 and above take calcium, compared to only 28% in 1988-1994. Among that same age group of women, 56% now take vitamin D supplements, compared with only 30% in 1988-1994. Factor in that close to 50% of Americans are on a diet at any one time, combined with the popularity of fast and junk food, and the odds of people being nutrient deficient are pretty good.

It is not surprising then that Nutrition Business Journal‘s Supplement Business Report 2011 sees the industry, which generated $28.1 billion in sales during 2010, growing at an average annual rate of approximately 3.7% through 2017. Moreover, the supplement industry is fragmented, which allows for strategic M&A that will enable larger operators to round out product categories, as well as gain operational synergies. I will offer further insights about this long-term bull market opportunity in the coming weeks.

Next Week

As we close in on the last week of trading for 1Q 2012, traditionally there is a fair amount of window dressing going on at mutual and hedge funds. With only a handful of days left for companies to close the books on their businesses, the final push is on to close deals that will enable them to meet Wall Street expectations for the quarter. As such, in addition to the economic and corporate earnings listed below, beginning next week, I will watch for companies that pre-announce earnings to the downside. You can rest assured that I will be digging through any such pre-announcements to determine which other companies may be vulnerable and what this situation means for PowerTrend investing.

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Monday, March 26
Pending Home Sales (February)
American Apparel (APP)

Tuesday, March 27
Consumer Confidence (March)
Charming Shoppes (CHRS)
Lennar Corp. (LEN)
McCormick & Co. (MKC)
Robbins & Myers (RBN)
Walgreen Co. (WAG)

Wednesday, March 28
MBA Mortgage Index (Weekly)
Durable Orders (February)
Crude Inventories (Weekly)
Family Dollar Store (FDO)
Paychex Inc. (PAYX)
Teavana Inc. (TEA)

Thursday, March 29
Initial & Continuing Jobless Claims (Weekly)
GDP – Third Estimate (4Q 2011)
Best Buy co. (BBY)
Dream Inc (DRJ)
Jos A Bank Clothiers (JOSB)
Research in Motion (RIMM)
Shaw Group (SHAW)

Friday, March 30
Personal Income & Spending (February)
Chicago PMI (March)
Michigan Sentiment Index (March)
Comstock Homebuilding (CHCI)

Chris Versace
Editor, PowerTrend Brief

P.S. You can take advantage of a special promotional offer to become a subscriber to my new monthly investment newsletter, PowerTrend Profits. Our normal subscription price will be $249 a year but my publisher is offering a pre-publication, introductory price of only $77 through April 13. After that date, the introductory price will increase! My first issue will come out toward the end of April, so I invite you to become a founding subscriber by signing up today.

Upcoming Appearances

On Monday, March 26, listen for my weekly appearance on America’s Morning News to talk the economy, the stock market, stocks and more.

On Friday, March 30, watch me on Fox Business News with Cheryl Casone.

On Saturday, March 31, watch me on the Tom Sullivan Show on Fox Business News, 7 p.m. EDT and 10 p.m. EDT, as well as on Sunday, April 1, at 7 a.m. EDT and 7 p.m. EDT.

On Saturday, April 28, I will address the American Association of Individual Investors (AAII) Computerized Investing Special Interest Group in McLean, Va.

Please join me for the Las Vegas Money Show, May 14-17, at Caesar’s Palace. To register, call 1-800/970-4355 and mention priority code 026656 or go to ChrisVersace.lasvegasmoneyshow.com.

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