The first five trading days of December delivered a mixed result for the major stock indices with the Dow Jones Industrial Average being the clear winner (up 1%), the S&P 500 essentially unchanged and the Nasdaq Composite Index down 1.1%. As with the prior week, one of the key drags on the Nasdaq has been Apple, Inc. (AAPL), whose shares dropped nearly 9% last week. That brings the drop from the 52-week high for Apple’s shares to last weeks closing to just over 24%.
Generally speaking, domestic economic data was also mixed last week. While we once again had a fall in the unemployment rate dipping to 7.7% in November from 8.3% in July per Department of Labor data, job creation remains well below 200,000 per month. Viewed from a different perspective, it’s the continued rise in the number of Americans that are not in the labor force that is driving down the unemployment rate. After all, if your not in the labor force than you can’t be considered employed or unemployed. Sorry folks, that’s the way the government tabulates the data. The number of people dropping out of the labor force in November rose by 542,000, bringing the trailing twelve month figure to more than 2.3 million.
Looking at other employment related reports, the Challenger Job Cuts report showed a significant upward move in November, reflecting the share rise in layoff announcements from companies like - Boeing (BA) Perkin Elmer (PKI), Bristol-Myers (BMY), Corning (GLW). DuPont (DD), Newell Rubbermaid (NWL), Colgate-Palmolive (CL), Advanced Micro Devices (AMD), Texas Instruments (TXN) and Xerox (XRX) among others. Data from Gallup revealed a more disconcerting data point in November -- the sharp drop in the U.S. Payroll to Population (P2P) employment rate, which fell to 43.7% for the month down from 45.7% in October. As Gallup noted - “After remaining substantially above year-ago levels during the summer and early fall, the P2P plunged in November, falling below 2011 levels.”
The other pseudo eye opener was the ISM Manufacturing Index reading for November, which fell to 49.5 - below the expansion/contraction line of 50. Surprising - some, but not really if you’ve been paying attention to a number of the regional Fed manufacturing reports. What I did find surprising below the ISM headline number was the drop in the orders component. Declining orders, likely reflect concern over the “fiscal cliff” as well as the continuing contraction in Europe.
With only a few weeks left in the quarter, we’ll need to be on the lookout for companies pre-announcing shortfalls relative to Wall Street expectations for the current quarter. Because there are also only a few weeks left in the balance of 2012, some companies may simultaneously revise expectations for either the first few months of 2013 or for the entire year. With the fate of the “fiscal cliff” yet to be determined, companies will likely hope for the best, but make plans for the worst. Even if we do get a deal for the “fiscal cliff” before the end of 2012 - which seems increasingly unlikely - higher tax rates will slow company investment and hiring, thereby curbing economic growth at least for the beginning of 2013. That means companies will need to reset revenue and earnings expectations.
Launching PowerTalk -- Behind the Scenes & In The Know
In recent PowerTrend Briefs, I mentioned that I would be launching a new service designed to close the information gap between institutional investors and you. That offering is PowerTalk - an in depth conversation with with CEOs, COOs and other key business people at public and private companies as well as other subject matter experts. It’s conversations with people such as these offer tremendous insights into how an industry or company works, what the competitive dynamics are and where its likely to head in the next few quarters and years.
Last week, I shared my PowerTalk conversation with Matt Jacobson of Acta Wireless in which we talked about mobile payments, mobile couponing and other aspects of mobile commerce. We also discuss the transition from cash and credit card to paying with mobile devices, such as GoogleWallet or the mobile carrier Isis Mobile, and how retailers such as Best Buy (BBY), Sears (SHLD), Target (TGT) and Walmart (WMT) are responding. To listen to that conversation, click here. With eBay’s (EBAY) PayPal, Square and even Starbucks (SBUX) reporting strong increases in mobile transactions, this PowerTalk could not be more timely.
Next week, I’ll be talking with James Debney, president and CEO of firearm manufacturer Smith & Wesson (SWHC), a candidate for my Safety & Security PowerTrend.