Dave  Moenning

Monday's ISM Manufacturing report in the U.S. was an eye opener on many fronts. But the key takeaway is that there is simply no denying the fact that growth is slowing down - a lot. While there was some chatter about the ISM data being "off" and several analysts said they preferred to wait for confirmation from data such as Durable Goods before panicking, the fact that the ISM Manufacturing index came in below 50 (which indicates that the sector is contracting) for the first time in 35 months means that the slowdown looks very real.

The problem though is the U.S. remains the best house in this growth-slowing neighborhood. While China's (FXI) economic growth rate remains the envy of nearly every country in the world, the rate of growth has slowed from nearly 11% per year to something on the order of 7.0% - 7.5%. For comparison purposes U.S. GDP has slowed from 3.1% in the fourth quarter of 2011 to 1.9%. The rest of the BRIC's (EEB) are no better as India's (EPI) economy is being hit with the double whammy of slowing growth and inflation. Brazil's (EWZ) economy is also struggling. And then there's Europe (EZU). My guess is I don't need to rattle off any statistics in order for you to acknowledge that the continent is a mess from an economic growth standpoint.

On a micro level, there is already a fair amount of talk about how the current growth slowdown theme will impact earnings. Yesterday, a Thomson Reuters study provided some concrete evidence on the subject. The report showed that of the 85 S&P 500 (SPY) companies that have recently warned about their Q2 earnings coming in below expectations, at least 20 cited Europe specifically as the reason for the expected earnings miss, while 15 highlighted adverse currency movements, and 12 more talked about earnings uncertainty being due to "macro conditions."

So, how did the stock market react to the news that the manufacturing sectors in the U.S., Europe, and China are now all contracting at the same time? Well, after the requisite algorithm-induced dive of 7 S&P points in less than 3 minutes, U.S. stocks bounced around for a while and then managed to stage a steady advance to finish with small gains, of course!

What gives, you ask? Why didn't the market tank on this horrific economic news? Why didn't stocks give back all of Friday's gains and then some? Isn't the risk of recession rising? Hasn't Europe reached the point of no return? And shouldn't traders be factoring in the possibility that the sky might actually be falling this time?

Dave Moenning

David Moenning is the President and Chief Investment Strategist for Heritage Capital Management, a Chicago based SEC Registered Investment Advisory firm which he founded in 1989. You can follow Dave at .