By any stretch, it’s been a tough week for bulls: dismal economic news; no sign of a bottom in housing; financials have been unstable; and retailers have declined on concerns that not just March, but the second quarter, will be difficult.
Still, the markets held up well, considering the news. The Dow was down 1.1 percent, the Nasdaq eked out a small gain.
The issues are now around the second quarter. Has the Street factored in:
-Q2 economic weakness?
-Q2 writedowns for brokers & builders?
-Q2 consumer spending deterioration?
Given the miserable economic data this week, next week's raft of data is unlikely to surprise on the upside:
1) The ISM survey on Tuesday may be below expectations, certainly below 50 (which would indicate continuing contraction in manufacturing).
2) Domestic auto sales on Tuesday will be restrained by tighter credit conditions and the economic slowdown.
3) Nonfarm payrolls on Friday will likely indicate that the weakness in February has continued into March.
But once again, there is some good news:
1) Analysts are actively taking down estimates for the first quarter and are starting to look at the second quarter; this is the major reason the markets are having trouble advancing.
2) There is some hope that, if redemptions are not as bad as feared, we may get a modest rally at the start of the quarter as cash on the sidelines come back in.
The Street can now clearly see that, even if liquidity issues are being addressed, the broader economic statistics continue to look poor; the quicker it digests this news, the better.
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