CNN/Money  
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Markets & Stocks
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Hard to please
The economy roars. Stocks do not. It's a hard situation to figure.
November 8, 2003: 6:20 PM EST
By Justin Lahart, CNN/Money Senior Writer

NEW YORK (CNN/Money) - To start with, let's run through the big economic reports that came in over the past couple of weeks.

First off, there was that third-quarter gross domestic product. GDP grew at a 7.2 percent annual clip, well above the 6 percent economists expected and the strongest quarter in 19 years. Then there was the Institute for Supply Management's purchasing managers' index for October, which clocked a reading of 57 rather than the 55.9 that was expected, indicating a continued revival in manufacturing activity.

Finally, the jobs report. A gain of 126,000 payrolls in October, well ahead of the expected 65,000 jobs gain, a sharp revision upward in the September numbers and an unemployment rate that slipped down to 6 percent when it was expected to stick at 6.1 percent.

And yet stocks have shown little in the way of response as the good economic news has proliferated. Wall Streeters offer up differing views of why this may be so.

Some say that all the good news was already baked into the market's cake, that regardless of what economists say, investors somehow collectively knew how good things were going to be. If we were Mr. Peabody, maybe we could take the WABAC machine to a couple of weeks ago and ask these characters where they thought stocks would go if the economic reports came in as good as they, in fact, have.

Another possibility is that investors are starting to get worried that the kind interest-rate environment is going to start to go away. If the economy is really recovering as smartly as it seems to be, they surmise, the Federal Reserve is going to be raising rates a whole lot sooner than it's letting on.

Some Fed watchers even surmise that the road to higher rates is getting paved now. They point out that in a speech on Thursday Alan Greenspan used the hot-button word "vigilant" with regard to the prospect of inflation. Last time that happened was in July of 2000.

"A lot of bears feel the only reason stocks are up is because the Fed is pumping money into the system," said Kirlin Securities chief strategist Brian Reynolds.

They also worry that rising rates would make Treasurys more competitive with equities as an asset class, and that this could pull money out of stocks.

A final worry is that the mighty U.S. consumer is beginning to falter. Auto sales in October were down even more than expected from September's hot pace and the pace of monthly chain-store sales fell short of the estimates. These slowdowns may manifest themselves in the Commerce Department's monthly retail sales report, due out on Friday. (Click here for a line-up of the week's key events.)

But although economists expect consumer spending to slow from its white-hot, third-quarter pace, they now see little chance that sales will falter badly in the months to come

"People need to reload here -- they can't buy a car every month," said Northern Trust chief U.S. economist Paul Kasriel. "But don't fret, because we're going to get a big tax refund next year, and that will cause spending to pick back up."

Meanwhile, Bank of Tokyo-Mitsubishi economist Mike Niemira says those weak October chain-store sales are not as weak as they seemed. Yes, apparel and department stores weren't good in October -- with many of them blaming warmer weather for not hitting their targets.

Blaming weather is the dog-ate-my-homework of the retail world, but this time it may really be true. Niemira points out that wholesalers did well, as did drugstores -- a sign that consumers were happily stocking up on Halloween necessities like costumes, candy and shaving cream.

"When you look at where the areas of strength were, you have to come away with a little more optimism than pessimism," said Niemira.

Key events in the week ahead

  • Throughout the week a number of retailers will be posting their fiscal third-quarter earnings. Chief among them is Wal-Mart, which reports Thursday morning.
  • Tuesday is Veteran's Day. Bank tellers and bond traders will get the day off. Stock traders and financial journalists will not.
  • International trade figures for September are due out Thursday. Economists expect the trade deficit will widen to $40.5 billion from August's $39.2 billion.
  • October retail sales come out Friday. Economists expect they rose 0.1 percent following a 0.2 percent drop in September. Exclude autos, and they expect a 0.3 percent gain, same as in September.
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  • The October producer price index, which measures inflation at the wholesale level, is set to come out Friday. Economists expect it to show a gain of 0.2 percent, down from September's 0.3 percent gain.
  • Also slated for Friday: October industrial production and capacity utilization figures from the Fed. Economists forecast production picked up by 0.4 percent, equal to September's gain. Capacity utilization is forecast to inch up to 74.9 percent from September's 74.7 percent.
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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.