With fresh doubts about the durability of the recovery in the mind of the market, macro trumps micro right now. In other words, professional stock investors are tracking macroeconomic indicators for clues about the nation's economic health. Here are three numbers to watch this week:
- Tuesday: Case-Shiller Home Price Index
Last week, the specter of a double-dip in housing gained substance as data showed that May sales of new single-family homes experienced their largest decline since 1963. That drop was partially the result of the expiry of a government tax incentive at the end of April, pushing homebuyers to "cram" their purchase into April. This week's Case-Shiller Home Price data is expected to show prices declined between March and April. Not good.
- Friday: ECRI Weekly Leading Index
The Economic Cycle Research Institute -- a private research group -- has a good track record predicting recessions using this index. Investors were somewhat relieved by the increase in last week's number after six weeks of decline; however the index's annualized growth rate dropped to (6.9%) -- the lowest rate since May 2009. As Gluskin Sheff chief economist David Rosenberg noted, "The consensus is looking at 3% real GDP growth for the second half of the year, but the two quarters following a move in the ECRI to a -5% to -10% range is +0.8% at an annual rate on average."
In my opinion, a second half slowdown in the economy is all but inevitable, but Friday's number will help sharpen that outlook.
- Friday: June Employment Report
Analysts are looking for the private sector to add 119,000 jobs in June. That would certainly be an improvement over the May's 41,000, which spooked investors earlier this month, but it won't lower a stubbornly high unemployment rate (median forecast: 9.8%) -- one of the keys to any durable recovery.
There is food for thought in this week's earnings releases: It'll be useful to compare the results of two consumer staples stocks General Mills (NYSE: GIS ) , and Constellation Brands (NYSE: STZ ) against those of consumer discretionary stock Barnes & Noble (NYSE: BKS ) and tech stock Micron Technology (NYSE: MU ) . For all but Barnes & Noble, the quarterly results will include May. My guess is that any negative surprises are more likely to surface in the second duo. In an extremely challenging environment, I continue to favor defensive sectors over cyclicals.
Investors should expect disappointing returns from U.S. stocks over the next several years. The good news is that there are alternatives for your money. Tim Hanson explains how to make more in 2010.