Wednesday, November 4th, 2009
Services Stocks Rally Despite ISM Services Report
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Consolidated Graphics, Inc. (CGX), R.R. Donnelley & Sons Company (RRD), and LIN TV Corp. (TVL) were among the top movers in the services industry despite a lackluster ISM Services report this morning.
The Institute for Supply Management’s service index edged up to 50.6 in October from 50.9 a month ago. While the number may have moved above the 50.0 point, the market was expecting a reading of closer to 51.5. The drop was likely due to slower consumer spending, as personal income, wages and salaries all dipped for the quarter and put a damper on the sector.
Despite the lower-than-expected results, the service sector rallied in early trading Wednesday. Printing companies like Consolidated Graphics, Inc. [[CGX]] and R.R. Donnelley & Sons Company [[RRD]] were among the leads after reporting sharply higher earnings. Meanwhile, LIN TV Corp. [[TVL]] also moved higher following its third quarter earnings earlier this week.
Investors impressed by the third quarter’s results may be tempered when the fourth quarter comes around. The slower spending numbers suggest that top-line revenues may taper off as consumers spend less, while bottom-line improvements in net income may be somewhat limited given the extent of past cost-cutting efforts.
At the same time, economists are concerned that mounting unemployment could signal that consumer spending will only accelerate with government assistance. As a result, there is a great concern about what will happen when government stimulus funds fade and consumers are left to fend for themselves. The data also makes it more likely that Fed rates will remain low.
Losers in the services sector included companies like Glimcher Realty Trust [[GRT]] and H&E Equipment Services [[HEES]], who both reported earnings during the past week. However, the sector as a whole largely improved and many of the industry’s ETFs moved higher on the day despite the lackluster ISM Services data.
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-- Written by Simon Monger
