Dear Readers
One of the best performing sectors in 2010 was the consumer discretionary, particularly the auto industry. The monthly car and truck sales data coming out today will give us a good idea about the extent of improvement in the U.S. auto industry.
The expectation is for the seasonally adjusted annualized tally in December to increase 11% from the year-earlier level to 12.3 million vehicles. The actual sales for the year would total 11.5 million; a major improvement from the dark days of the recession, but way below the cyclical peak of over 17 million vehicles a few years back.
But the prior peak was achieved when the unemployment rate was roughly half of where it is today. The impressive gains made last year by auto stocks reflected pent up demand following the end of the recession. But how much more gains can be expected in the absence of a noticeable reduction in the unemployment rate.
And this brings us to this week’s major expected news – the December non-farm payroll report due Friday morning. We will get something resembling sneak peek into the Friday report from tomorrow’s ADP report.
The labor market remains the key laggard at this stage. It has been improving, but not at a pace that will bring down the unemployed rolls fast enough. But irrespective of what the Friday report produces, the improving trend has become very significant lately. After all, it was only last week that we got the first weekly Initial Claims report of under-400K in a long time. All we need now is to have that trend get translated into job creations.
At this stage, It is only a question of ‘when’, not ‘if’. But don’t be surprised if the market loses its recent momentum following a negative labor-market surprise later this week.
Happy Investing,
Sheraz Mian
P.S. What is Zacks Ahead of Wall Street? To find out more about Zacks Ahead of Wall Street, click here.
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