After a long weekend, it is time to get back into the swing of things.
THE KEY ECONOMIC LANDMARKS WE PASSED
- New Home Sales: 412K vs. 430K est.
- CaseShiller 20 City Composite MoM: -0.2% vs. 0.0% est.
- Pending Home Sales: 3.3% vs. 0.5% est.
It was a mixed bag again for housing numbers. New home sales were weak while pending sales improved and were above expectations. The supply of new homes rose from 5.6 to 6.0 so there seems to be an issue with demand for the traditional single family home. However, with prices moderating as shown by the CaseShiller numbers, the proper balance between supply and demand might come together. Prices declined on a monthly basis for the 20 city composite for the first time since the start of 2012. Additionally, the YoY number has been slowing down over recent months. All-in-all, the housing market is still on track.
2. Durable Goods: 22.6% vs. 8.0% est.
Always a volatile and confusing data point, durable goods kept to its reputation again. The vast majority of the gain was due to a 318% jump in civilian aircraft orders which attributed to a 74.2% gain in transportation. Removing the transportation sector paints a much different picture as orders declined 0.8% in July on estimates of a 0.5% gain. However, with a healthy revision for the prior month, the net effect is less worrisome. Unfilled orders in the manufacturing category were up which points to continued fuel for the economic engine.
3. Q2 GDP: 4.2% vs. 3.9% est.
The number keeps getting better. Since the revision was only 20bps, there are not a whole lot of new things to say. Much of the revision came from changes to exports and inventories which was anticipated due to trade balance data released prior. With one more revision left before we see the final print, we seem to have escaped falling into recession by the standard definition (i.e. two quarters of negative growth).
LAST WEEK’S MARKET IN THE REAR-VIEW: “Volume Low, Prices High”
After poking above 2,000 on the S&P 500 to start the week, equities moved in the narrowest closing price range of the year (~6.5 points). Volume was no where to be found even as stocks made new all-time highs. The S&P 500 experienced the two lowest volume days of 2014 last week as the average volume for the week was less than 70% of the average for the year. Traders shrugged off Iraq, Ukraine, mixed housing data, a confusing durable goods number, and other items in favor of drooling over keyboards in anticipation of a final long weekend to celebrate the end of summer. The 10 Year Treasury saw persistent buying action throughout the week as sovereign debt in Europe saw yields erode into the negative zone (e.g. German 2 yr Bund).
LOOKING THROUGH THE WINDSHIELD
It is all about manufacturing and payrolls this week. Recent months have continued to show strength in both of these areas and further evidence of a solid footing will bode well for the rest of the year. I would like to see a good number for vehicle sales and additional narrowing of the trade balance as well.
Historically, September has been a bad month for stocks so we’ll get some clues on how Q3 will end during the week. After pushing through all-time highs and settling in last week, prices seem fairly stable at these levels. Iraq, Russia, and interest rates will be the main downward catalyst in the near future while housing numbers, corporate earnings, and labor markets could provide a further boost upward.