We continue to see progress in many areas of the economy which has translated into positive results for stocks in 2012. The main risks we see at this time is whether or not consumers and businesses put purchasing decisions on hold as we await the election results and the resolution to the impending “fiscal cliff”. We think investors will likely anticipate a last minute deal to extend many of the tax cuts for at least one more year as well as a number of “patches” that address some of the tax and government spending time bombs that are scheduled to hit in 2013. The election will remain an unknown for investors and we will be researching the impact on our investments based on both candidates stated positions on taxes, regulation, energy development, government defense spending, etc.
A few of the recent economic reports include:
U.S. MANUFACTURING REBOUNDS
The Institute for Supply Management’s Purchasing Managers Index (PMI) came in at 51.5 for September, a welcome change after three straight months below 50 (readings above 50 signal improvement). ISM’s service sector PMI also showed expansion, improving to 55.1 in September from the 53.7 reading for August.
AUTO SALES RISE
Gas prices have climbed 14% since July 1, but fuel costs certainly haven’t impeded new car sales. According to Edmunds.com, overall U.S. auto sales were up 13% from a year ago in September. Toyota and Honda posted 41.5% and 31% monthly sales increases, respectively. Additionally, 34% more Volkswagens moved off new car lots and Hyundai and Chrysler Group sold 15% and 12% more vehicles last month, respectively.
Third quarter earnings are starting to come out and the early indication is that overall the numbers should be good especially in comparison to the overall trend of lowering expectations over the past few months. Today JPMorgan and Wells Fargo reported earnings that surpassed expectations.
Next week a large number of corporations will report earnings, a few notables include; Citigroup, Bank of America, Goldman Sachs, IBM, Coca-Cola, Pepsi, McDonalds, Google, Microsoft and General Electric. We will be monitoring these earnings announcements closely and the forward guidance issued by a number of these companies should be very insightful.