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Wednesday, November 27, 2013

(Note: Mark Vickery will be putting together this morning note through December 11th while I am away)

Stocks will likely discount this morning’s soft Durable Goods report and maintain the positive momentum of recent days in an otherwise light-volume session ahead of the Thanksgiving holiday. The Jobless Claims data was broadly positive this morning and we have a number of other economic data coming out later today as well.
 
The October Durable Goods report was broadly on the weak side, both on the ‘headline’ as well as the ‘core’, spotlighting the continued weak capital spending trends in the economy. The ‘headline’ weakness wasn’t unexpected, largely a function of fewer orders for Boeing (BA - Analyst Report), but the soft reading for the ‘core’ (nondefense capital goods excluding-aircrafts) maintains the weak trend in this key capital spending proxy.

The October numbers may have been dragged down a bit by uncertainty from the government shutdown that likely prompted companies to hold off on placing new orders. But capital expenditures have been weak for quite some time and haven’t played their typical role in this recovery despite the steady improvements in the labor markets and very strong corporate cash levels. That’s what we have been seeing consistently in quarterly GDP reports lately. Apparently, companies see better returns on buying back their own shares than investing in their business.
 
Unlike the Durable Goods report, the weekly Jobless Claims numbers were broadly positive, with initial claims falling by 10K to 316K. The 4-week moving average, a less volatile series, also declined. Coming out a little later, we have the Chicago PMI and the University of Michigan Consumer Sentiment numbers. The Chicago PMI, which is considered a good proxy for the national manufacturing ISM index that comes out on Monday, is expected to pullback from October’s level.

The Consumer Sentiment numbers are expected to modestly improve from the preliminary 72 reading, though the Conference Board’s Consumer Confidence index lost ground on Tuesday. Commentary from retailers like Wal-Mart (WMT - Analyst Report), Best Buy (BBY - Analyst Report) and others on the Q3 earnings calls has not been very encouraging about the holiday shopping season thus far. But we will have a good sense of spending trends by early next week after seeing developments over the Thanksgiving weekend.
 
Happy Thanksgiving.

Sheraz Mian
Director of Research

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