PowerTrend Brief: Economic Slowing in Housing and Manufacturing Now Hits Jobs

Last week, I shared my view that April would be the first down month for the S&P 500 since last November and, as we saw, that indeed was the case. The culprit was renewed concern about the European economy as the United Kingdom and Spain entered a double-dip recession, as well as rising concern about the health of the domestic economic recovery. In recent weeks, a number of indicators for housing and manufacturing have reversed course, suggesting a slowdown in the recovery. This situation appears to have spread to job growth as April reports from Intuit and ADP suggest slower private sector job growth in April than March, while Gallup’s proprietary survey revealed a month-over-month increase in the April unemployment rate. Taken together, these reports confirm the slowing nature of the recovery, but many will be waiting for Friday’s April Employment report from the Bureau of Labor Statistics for “official” confirmation.

In my view, this reality will result in many investors — institutional and individual alike — revisiting the notion of “sell in May and go away.” While that may be good for some, we continue to look for companies that are well positioned to take advantage of my PowerTrends and have a compelling risk-to-reward profile in their shares. As such, each and every week I scour dozens of data points to find supporting evidence for my PowerTrend way of investing. It’s these data points that help us steer in a choppy market. Here are a handful of the data points that I found telling this past week:

• Cashless Consumption – In an effort to boost what it calls the “frictionless purchase experience,” bookstore chain Barnes & Noble plans to include NFC chips in its Nook e-readers. With this NFC-enabled e-reader, consumers could tap on physical books in Barnes & Noble stores to get editorial reviews and other information, as well as purchase the book online.

• Always On, Always Connected – A new report from Futuresource Consulting says tablet sales are expected to increase by 200% during the next two years to 232 million units in 2016, up from 64 million units last year. As the tablet continues to become a more attractive platform for developers, Futuresource expects tablet apps to account for nearly 20% of total mobile app downloads in 2016, compared to 10% in 2011.

• Safety & Security – Growth in Federal Bureau of Investigation (FBI) firearm background checks continued to strengthen in March, which was up more than 19% compared to March 2011. All in all, total 1Q 2012 firearm background checks performed by the FBI were up more than 14% compared to a year ago.

• The Cash Strapped Consumer – Americans’ financial comfort is the lowest Gallup has measured to date, with 60% of respondents saying they currently have enough money to live comfortably and 39% saying they do not.

• The Rise and Fall of the Middle Class – According to data from Euromonitor, emerging markets are expected to grow from 14% of global prestige beauty sales in 2010 to 21% in 2020. Given the 2010 average beauty spend per female of $229 in developed nations, compared to $43 per female in the emerging markets and, more specifically, $19 per female in China, there is ample room for beauty spending to grow in the emerging markets. Per Euromonitor, the top three beauty emerging markets are China, Russia and Brazil.

• Better, Smarter America – More than one third of U.S.-based manufacturing executives at companies with sales greater than $1 billion are planning to bring back production to the United States from China or are considering it, according to a new survey by The Boston Consulting Group. The top factors cited as driving future decisions on production locations: labor costs (57%), product quality (41%), ease of doing business (29%) and proximity to customers (28%). In addition, 92% said they believe that labor costs in China “will continue to escalate,” and 70% agreed that “sourcing in China is more costly than it looks on paper.”

• Scarce Resources – India has eased a nearly two-month restriction on cotton export permits, removing all barriers to shipments from the world’s second-largest producer. This situation should result in a drop in the price of cotton, a key input for clothing and textile manufacturers, which has averaged $1.004 per pound year-to-date, per the National Cotton Council of America.

Sincerely,

Chris Versace
Editor, PowerTrend Brief

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Next Week

As the onslaught of earnings slows — more than 2,200 companies have reported their March quarter results over the last two weeks — the domestic economy once again will take focus as April data is reported. Here is some of what I’ll be putting under the microscope next week:

Monday, May 7
Consumer Credit (March)
Carmike Cinemas (CKE)
DISH Network (DISH)
Jamba Inc. (JMBA)
Rackspace Hosting (RAX)
Synchronoss Technologies (SNCR)
Tyson Foods (TSN)

Tuesday, May 8
Blue Nile (NILE)
EW Scripps (SSP)
Fossil Inc. (FOSL)
GeoEye Inc. (GEOY)
Learning Tree International (LTRE)
Medifast Inc. (MED)
OfficeMax Inc. (OMX)
Pantry Inc. (PTRY)
Ralcorp Holdings (RAH)
Vitamin Shoppe Inc. (VSI)

Wednesday, May 9
MBA Mortgage Index (Weekly)
Dean Foods (DF)
Dollar Thrifty Automotive (DTG)
Macy’s Inc. (M)
Maidenform Brands (MFB)
MEMC Electric Materials (WFR)
Tesla Motors (TSLA)
Universal Display (PANL)

Thursday, May 10
Weekly Initial & Continuing Jobless Claims
Aeroflex Holdings (ARX)
American Public Education (APEI)
eMagin Corp. (EMAN)
Kohl’s Corp. (KSS)
Molycorp Inc. (MCP)
Nuance Communications (NUAN)

Friday, May 11
Producer Price Index (April)
Michigan Sentiment Index (May)

Upcoming Appearances

• On Monday, May 14, listen for my weekly appearance on America’s Morning News to talk the economy, the stock market, stocks and more.

• 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.