Market Overview

Keep An Eye On These Market Reports

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This week we have several very important economic reports and new Fed Chairman Jerome Powell's first Semiannual Monetary Policy Report to the Congress.  These top tier reports, will give us key data on future indicators regarding factories, jobs, consumer confidence, and insight to the Fed's policy direction.

The biggest econ report is coming out on Thursday; the ISM Manufacturing Index.  This forward looking report has a long track record of accurately gauging the direction of production, employment, new orders, and inventories.

As you can see in the chart, the ISM index has been on an upswing since the end of 2016 and has stayed above the 50 level -which indicates growth in the manufacturing sector- all the way through February of 2018.  The index has remained elevated due the expansion of both the domestic and global economies, strong new orders, and positive employment data. 

Current expectations are for the index to dip just slightly from its previous reading.  In last month's report, new orders hit its highest level in almost 10 years.  Another solid report from the ISM would be an overall positive for the industrial, factory, manufacturing, and production segments of the economy. 

On Wednesday, we will get a preview of the ISM report as the Chicago Purchasing Managers Index, or PMI is released.  The Chicago PMI is the most important of the regional manufacturing reports, as it is seen as having a strong correlation to the national ISM manufacturing index.

You can see the high correlation between the two manufacturing reports, with the Chicago PMI represented by the bars, and the ISM represented by the purple line.    

Last month the Chicago PMI showed extraordinarily strong growth with a reading of 65.7, and Wednesday's report is expected to come in just barely below that.  This would still be very positive news for the manufacturing sector, as last month's reading was near its historic high. 

If these reports come in as expected, Zacks Rank #1 (Strong Buy) Industrial companies like Terex Corp (NYSE: TEX), Century Aluminum (NASDAQ: CENX), Roper Tech (NYSE: ROP), and Dover Corp (NYSE: DOV) will benefit from the positive news. 

Also on Wednesday, the GDP report will be released at the opening bell.  This report is considered an all-inclusive measure of domestic economic activity.  This report will also be important to bond traders due to its correlation with inflation measures. A bit after the GDP report is released, new Fed Chairman Jerome Powell will make his first major speech where his tone regarding inflationary issues will be very closely monitored. 

We will also hear reports regarding the Consumer's view of the economy.  On Tuesday, the Consumer Confidence report comes out, and on Friday, we get the Consumer Sentiment report.  Of the two, the Consumer Confidence data, is the most closely watched.

The Consumer Confidence report shows the consumer's views on the overall economy, and their expectations for the next six months.  This data, is also highly correlated to retail sales as you can see in this chart.

Consumer confidence has historically been a key indicator for the future of both the stock and bond markets.  This is due to the fact that consumer spending impacts two thirds of the economy, and a consumer who views the economy in a positive light tends to spend more. 

The index has stayed near its 17 year high for the past few months.  The February reading is expected to improve slightly from its January levels.  A strong repot would be a positive for several sub sectors in the retail segment which include companies like Wal-Mart (NYSE: WMT), Gap Inc. (NYSE: GPS), and Lowe's Companies (NYSE: LOW), all of whom currently carry a Zacks Rank #2 (Buy) rating.     

Overall, this is an important week of reports, and if they come in as expected, it will set a positive tone for the markets for the near term.

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The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

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