Continuing yesterday’s poker analogy, let’s take a look at the cards dealt from today’s deck of economic data. (Aka, the “flop”.)
Card #1. The Philadelphia Fed Index was similar to the Empire Manufacturing Index, suggesting that while contraction in the economy is still expected for April, the rate of decline has slowed. The most notable component of the report was the jump in the six month outlook for general business activity, which rose to a reading of 36.2 from 14.5. This is a good card, indicating that the economy has likely begun to stabilize and that a marked increase in optimism is now beginning to show itself.
Card #2. Unemployment claims declined 53,000 to about 610,000, while continuing claims increased 172,000. This card is consistent with the first one, suggesting that the pace of job losses may be declining, but that people are still having a difficult time finding new jobs. Again, this card is a good first derivative indicator of a change in momentum to the downside, but perhaps is not yet consistent with an overall improvement in the economy.
Card #3. The companies that reported earnings last night and this morning are generally seeing nice positive moves in their stock prices today. I am particularly encouraged by the move in Harley Davidson (HOG). After nearly doubling from its lows, I was a bit concerned that it might be ahead of itself. But, the company reaffirmed its full year guidance and is now up another 9% today. With analyst sentiment so negative on the name, this action suggests that short sellers may no longer be willing to press their bets. Once again, this card is market friendly and perhaps an even better real time indicator of what may come than cards one and two.
All in all, the “flop” suggests additional upside in the market is more likely and that the economy may indeed be in the first stages of mending itself. Given the flop, I’d stay in the game and certainly wouldn’t fold. Would I increase my bet? Hmm. Let’s wait for the “turn” and the “river”.
