PowerTrend Brief: One Eye on “Fiscal Cliff” Conversations, another on PowerTrend Data Points

Chris Versace

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

Normally the last week of the year tends to be a quiet one, but that was not the case this year. Like most of you, I tried to enjoy the holiday week with my family and friends, while watching my kids try out their Christmas presents, but my eyes and ears kept coming back to the on again, off again “fiscal cliff” negotiations. That ping pong-like uncertainty hit the overall stock market late last week with all of the major market indices falling nearly 2%. While that was the main focus of the talking heads this past weekend, fiscal cliff and debt ceiling drama will carry over into this week and potentially into the New Year, there were a number of positive data points for PowerTrend investing that point to a favorable 2013.

First, we learned just how weak holiday sales actually were. A little more than a week ago, ShopperTrak, which analyzes customer traffic at U.S. stores, cut its holiday sales forecast to an increase of 2.5% during last year, down from its 3.3% projection issued in September and the 3.7% growth recorded last year. By comparison, MasterCard (MA) Advisors SpendingPulse, which tracks holiday spending, said that sales in the two months before Christmas increased only 0.7% compared with last year. Meanwhile, Liquidity Services noted that holiday shopping returns would climb 37% year over year.

What weighed on the holiday shopper this year?

Matthew Shay, president of the National Retail Federation, said it was Superstorm Sandy and the ongoing debate about the “fiscal cliff” of tax increases and spending cuts that could go into effect in 2013. All of that points to what I call The Cash Strapped Consumer aspect of my Rise and Fall of the Middle Class being alive and well. Believe me, it is not something I am happy to hear, but it is what the data is saying.

Exclusive  Daily Data Flow: Unemployment Falls in 43 States; Dollar Beats Euro, Yen; Consumer Sentiment Rebounds; GM Shares Break $33 IPO Level

Later this week we’ll revisit this PowerTrend when we get the December employment report. A number of companies have announced lay-offs or hiring freezes, given the uncertainty of the fiscal cliff. Odds are that we will start to see some of that in the December employment data. Aside from the unemployment rate and job creation figures for the month, average hourly wages also warrant close attention, given the rise in corn and food prices, as well as the recent rebound in cotton prices.

Second, while overall consumer dollars may have shrunk this year, the shift toward online shopping continued. One key beneficiary of that shift was Amazon.com (AMZN), which announced that 2012 was its biggest holiday ever with more than 26.5 million items ordered worldwide on its peak day, which equates to a record-breaking 306 items per second. Looking at the volume winners from Amazon, we found the Kindle tablets were the best-selling electronic items this holiday season. Confirming data was had on Christmas Day, which was the biggest day ever for digital downloads across Amazon’s selection of more than 23 million movies, TV shows, songs, magazines, books, audiobooks, and popular apps and games. Backing that up, data from IBM (IBM) Digital Analytics Benchmark showed a 22% year-over-year increase in online sales on Christmas Day. Taken together, that is but the latest data pointing to how consumers are Always On, Always Connected.

Although fiscal cliff conversations will take center stage this week, any developments on the agricultural bill bear watching. Why? Absent a new agriculture bill, the formula for calculating the price the government pays for dairy products reverts back to a 1949 statute and that could cause dairy prices to double. While it may not be a Scarce Resource per se, that situation, along with the recent rebound in cotton prices, could put a dent in the already fragile consumer.

I almost forgot to mention what my favorite Christmas present was this year — the Jaybird Freedom Bluetooth Earbud Headphones. Whether I am walking my dog, exercising or reviewing the latest PowerTalk, this headset is fantastic. If you’re looking for a belated gift that would keep on giving, my suggestion would be an annual subscription to PowerTrend Profits — details can be found here.

Exclusive  The Government Can Seize Anything, Including a Skyscraper!

To read my e-letter from last week, please click here. I also invite you to comment about my column in the space provided below.

From my family and me, Happy New Year and all the best to you and your loved ones as we head into 2013!

Sincerely,

Chris Versace

Editor, PowerTrend Brief

Here’s a more in depth look as to what economic data and corporate earnings are on tap for this week:

Monday, Dec. 31

PriceSmart Inc. (PSMT)

 

Tuesday, Jan. 1

U.S. stock markets closed

 

Wednesday, Jan. 2

MBA Mortgage Index (Weekly)

Construction Spending (November)

ISM Manufacturing Index (December)

Domestic Vehicle Sales (December)

FOMC Minutes The Greenbrier Companies

(GBX) Texas Industries (TXI)

 

Thursday, Jan. 3

Weekly Initial & Continuing Jobless Claims (Weekly)

Challenger Job Cuts (December)

ADP Employment Change (December)

Family Dollar Stores (FDO)

Sonic Corp. (SONC)

Worthington Industries (WOR)

 

Friday, Jan. 4

Factory Orders (November)

December Employment Report (December)

Unemployment Rate (December)

ISM Services Index (December)

Finish Line Inc. (FINL) Mosaic Co. (MOS)

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With the threat of a U.S. fiscal cliff dominating the financial headlines, the U.S. Santa Claus rally looks to be a “no show” in 2012. Since Friday, Dec. 21, the Dow Jones has dropped 1.92%, and the S&P 500 has fallen by 1.94%. In contrast, investors continued to favor global stock markets, with the MCSI Emerging Markets Index rising 0.99% over the same period. You've seen that strong performance in global markets with your recent leveraged bets on the ProShares Ultra MSCI Emerging M

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