Recession Watch: Philly Fed and Earnings

The Philly Fed manufacturing index showed a surprising dip into negative territory, dropping from an extremely high August reading.

What should we make of this?

For investors, taking the long view of the recession potential, it is one minor data point in a very volatile series.  Here is the take from the exellent Briefing.com site (you can and should register for the free trial, and figure out what level of service works for you).

The regional manufacturing index is showing the volatility that comes
with the small region surveyed.  A contractionary level of -0.4 in
September followed 18.5 in August — the strongest level in over a
year.  Our outlook sides with the fundamentals of strong underlying
business capital investment and manufacturing production given strong
corporate balance sheets.  The Philly index is independent of its
components so can provide a misleading read and is especially volatile
given the small region covered.  The manufacturing sector moves in
mini-cycles compared to the overall economy and the regional measures
move in even shorter cycles with far more month to month volatility.

At the same time  the market saw  FedEx  reporting  with  solid guidance.  This is a company that  has a good read on current conditions.

There was also a good CNBC  interview on Street Signs with  Peter Georgiopoulos of General Maritime discussing strength in shipping, strong exports, and essentially, no sign of weakening.

For the short-term traders the story started gradually with the Philly Fed news.  When they saw economically sensitive stocks moving lower, other joined in.  It did not help that the market is challenging technical levels.

The question for traders is whether this will be the pattern as each data point emerges.  The recession fear is palpable in their minds, part of the Cycle of Negativity we have been describing.

For investors seeking to build or add to positions in economically sensitive stocks, it is a warning of the current market mood.