Indexes Point to Bleakness

Tags: jnj, xom
3 Jan 1:15am
Posted by ZacksResearch
0 Comments
Read original blog entry

During such times, turn to stocks like Johnson & Johnson (JNJ) and Exxon Mobil (XOM).

The new year is starting in much the same way that the old year left off, with dismal economic data. The Institute for Supply Management's Manufacturing Index fell to a reading of 32.4. This is the 5th month in a row that the index has fallen. It is far below the 50 mark that separates expansion from contraction.

As the chart from Briefing.com below shows, it has not been this low for a long, long time. Last month, the total index was at 36.4, a reading that at the time was considered shockingly low. This month's reading was also well below expectations of 35.0.  

Looking at the sub-indexes, there is little reason for optimism.  The new orders index continues to run lower than the production index, as it has for each of the last five months. For December, the orders index was at 22.7, down from 27.9 in November and 48.3 as recently as August. The Production index fell to 25.5 from 31.5 in November and 52.1 in August. The employment index is holding up a little bit better, but is also on a steep downward slope, falling to 29.9 from 34.2 in November and 49.7 in August.

This index has a long history and is a very good predictor of future economic activity. However, it only deals with the manufacturing side of the economy. Over the years, manufacturing has declined as a percentage of the economy overall. Then again, it does tend to be the major swing factor in the economy (along with housing).

The service index is due out next Tuesday and is also expected to post a very negative (below 50) reading of 37.0, down slightly from November's reading of 37.3 and down from 50.6 before the 'stuff' hit the fan in August. I suspect that the services index will also disappoint.

There is nothing in this report that would cause the market to be up the way that it is today. That may, after all, be the best news there is. The market has started to ignore all bad news, which is often a healthy development.

On the other hand, it could just mean that the market is being overly optimistic. CNBC came out with a survey this morning of money managers, and 26% of them expect the market to be up over 20% in 2009, while only 6% expect the market to be down in 2009. This is EXTREMELY disturbing news, as an overwhelming consensus of money managers is almost ALWAYS WRONG.

The economy is going to be very ugly in 2009, and I would advise sticking to firms with products that people need, not want, and which have fortress balance sheets. A solid dividend yield that is well covered, even by the low estimate of 2009 earnings, is also a plus. Two examples of such companies would be Johnson & Johnson (JNJ) and Exxon-Mobil (XOM).



Read the full analyst report on JNJ.

Read the full analyst report on XOM.




Get real-time market insights and profitable stock recommendations from the team of analysts at Zacks Equity Research. See all today’s Analyst Blog entries on Zacks.com.

Comments

Back to top

Post comment

Back to top

Post a comment

Please login to post a comment

About

ZacksResearch

Zacks Investment Research is one of the most highly regarded firms in the investment industry. Our firm has long believed that that quantitative models (like the Zacks Rank) can predict stock prices more accurately than individual analysts. However we also recognize that models are most effective when they are employed by analysts who have deep fundamental knowledge of the company and its industry. Consequently Zacks Equity Research combines Zacks quantitative models with the insight provided by an experienced team of 50 analysts to create superior long term stock recommendations. Discover all their timely insight and recommendations daily on Zacks.com.

Recent Entries