By Danny Stewart
1 6 2013
Well it’s the beginning of a new year and I hope all of you had a wonderful Holiday. I spent cherished time with family and friends.
Before I go into market commentary I would like to make some economic observations that might affect your investment choices. First, overall Christmas sales came in lighter than expected.
Then at the beginning of this year, with the exception of the high end auto makers like Mercedes, BMW, Maserati etc.. December numbers for virtually all of the car manufacturers came in dismal. Chrysler (FIATY), Ford (F), General Motors (GM), and Hyundai (HYMLF) all missed their numbers in a big way.
We personally contacted 2 owners of dealerships in the DFW area. The first was a Volkswagen dealer and the other was a Chevrolet dealer, both of whom have been in the business for over 40 years.
They both confirmed that their December year over year (YoY) sales were the worst in their careers: worse even than the financial crisis. The ice storm did effect their numbers, but can’t nearly explain the rapid decline in sales.
Now the annual sales numbers weren’t bad and the big automakers aren’t panicking yet, at least not publicly. But with such a huge one month reversal, maybe they should be.
Car buyers simply did not buy in December, and if you own any of these mid-tier manufacturers, you may want to revisit your position(s). If you are a sophisticated trader, you may even want to consider a pairs trade where you go long one of the higher end car manufacturers and short GM or the like.
So the big question I have is whether the consumer is feeling fatigue and curtailing spending. Whether it is concern over Obamacare or simply confidence in the recovery doesn’t matter. If the trend continues it will have an effect on the economy and then the markets.
Regarding the markets, we got off to a rocky start for the abbreviated 1st week of 2014. Nothing like 2013 where we came charging out of the gate. January 2nd we experienced a big selloff, and tax selling was the reason given by the financial media.
The next two days were, for the most part, moderately in the red. Precious metals was the notable exception with strong gains thus far.
It is still a little early to see if we will still get the famed “January effect.” This is where we get solid gains in the first few weeks in January. Investors are watching January closely because when the month of January is positive, there is over an 80% chance of the year finishing in the green.
In the very short term the markets are showing weakness. We have not had a correction of 10% (not even 8%) in all of 2013 or even months before that. So a double digit correction of 10% to 14% wouldn’t surprise me.
But selling has been mild and hasn’t accelerated in either volume or negative market breadth. If selling does accelerate, I would sell my most aggressive positions.
That said, the midterm indicators are still strong, especially the advance decline lines. And they usually give early warning signs, normally up to 4 months in advance, of a major market reversal. It is still time to be long, but cautiously so.
Earning season does begins later this week. This will provide valuable clues as to the direction of the recovery. But today it will be a light day for economic data and company filings.
We have 2 economic reports out today including Factory Orders. We have no companies reporting on the S&P 500 and only 4 companies in the broader markets.
Remember to tune into The Wall Street Shuffle Saturdays on 1190 AM at 10 a.m. in DFW. We have a financial and market focus.
I hope you enjoy the show. If you have any investment questions you would like discussed on the air, just e-mail me a danny@thewallstreetshuffle.com and we will address your questions.
If you have any specific investment questions in which you would like personal advice, e-mail me at dstewart@old.noramassetmanagement.com and I will be happy to respond.
Dan Stewart CFA®
NorAm Asset Management
Economic Reports Today:
ISM Non-Manufacturing Composite
Factory Orders
Some Notable Earnings Reports Today:
A Schulman (SHLM)
Sonic (SONC – after market)
The information presented is for educational and entertainment purposes only. Opinions and information expressed are based upon information considered reliable. However, factors are constantly changing and should not be relied upon. You need to do and verify your own research.
Moreover, no reader or listener should assume that any information or discussion presented serves as personalized investment advice from NorAm Asset Management, Inc. or from any other investment professional, and is not an offer of solicitation for the sale or purchase of any specific securities, investments, or investment strategies. You need to have your own, individual investment advice suitable for your personal situation.
Investments involve risk and unless otherwise stated are not guaranteed.
