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Wednesday, August 27, 2008

Durable goods report lights up Wall St - but who's lurking in the shadows?

"Was a sunny day, not a cloud in the sky. Not a negative word was heard." - Paul Simon, Was A Sunny Day
Today's durable goods report surprised investors by posting a rise of 1.3% in new orders for the month of July. This was way more than the anemic 0.2% expected by economists. Shipments clocked with a robust gain of 2.5%.

Digging down a level, it turns out that much of the gains were due to transportation equipment, specifically aircraft. New orders were up 28%. (Now if Boeing could just deliver...)

Excluding the volatile transportation sector, new orders were up only 0.7%

Exports were generally identified as the driver behind these good numbers. This led some analysts to worry that we are unlikely to see growth like this continue with world economies slowing and the dollar rising.

In the meantime, though, it was time for stocks to bask in the sun; the major averages all made healthy moves to the upside today. Still, there were a few sectors casting shadows on the good times.

Technology fading into the darkness?

I was surprised to see the mixed up situation in the Tech sector. At the Computers and electronic products summary line, new orders actually fell, sliding 1.3%. Drilling down into the sector a little further we see that new orders for Computers and related products were down 10.7%, more than twice the drop we saw in the May-June comparison. Shipments for Computers were down 12.9%.

The bright light in the Tech sector turns out to be semiconductors with shipments in July up a whopping 33.9%.

After digesting this data, though, the question is whether it is reasonable to continue to regard Tech as a "safe" sector.

Defense on the decline?

Who else was stuck in the shadows? New orders for Defense capital goods were down 25.7%. (George Bush and the Pentagon must be running out of juice...)

Anomaly in the auto industry?

Motor vehicles showed an increase of 1.2% in new orders. This, at a time when GM and Ford are experiencing plunging sales and burgeoning losses. Is this just the result of a strike ending at an axle plant that supplies GM? If so, don't expect a positive number next month.

In summary --

Industrials managed to eke out a decent gain today and tech stocks rose nicely along with everyone else though, surprisingly, they did not rise as much as the financials did. All in all, a good durable goods report with just a few pockets of weakness. And that's all it took to part the clouds on Wall Street.

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