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Investing Specialists

Brace for Bumpy Data

Though upcoming weak data may simply reflect temporary Japanese supply chain disruptions, the market's potential reaction to bad news may be less forgiving.

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The economic news flow this week was light but generally positive. As I warned last week, corporate earnings were not as strong as some had hoped; reports from tech giant  Oracle (ORCL) and  Micron Technology (MU) proved to be disappointing. But more importantly, the European debt situation remained unsettled and weighed on markets all week long. Moody's pending review of bank debt issued by Italian banks seemed to be the latest catalyst for decline.

On the positive side, strong durable goods orders seemed to suggest that the worst of the manufacturing slowdown may be over. Housing prices also appeared to perk up for the first time in almost a year according the Federal Housing Finance Administration. However, I am braced for next week's data, as personal income and spending data are likely to look weak and the prognosis for auto sales and the purchasing managers' report is not so wonderful, either. While I think a lot of these reports reflect Japanese supply chain disruptions coursing through the system, the market's potential reaction to bad news may be less forgiving.

Durable Goods Orders: Some Light at the End of the Tunnel
Durable goods orders rebounded from a large decline of 2.7% in April to an increase of 1.9% for May. April orders were also revised up from the originally reported decline of 3.6% to a more modest decline of 2.7%. Excluding the volatile airline and auto sectors, core orders still managed to improve by 0.6% compared to a decline of 0.4% in April (revised from negative 1.5%).

Robert Johnson, CFA does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.