Weekly Drive: October 27th to October 31st, 2014

NOTE: Content was written on 11/4 and posted 11/7. Certain events already took place.

I hope everyone is ready for winter. It is coming. We had our first snowflakes of the season last Friday along with massive waves on the lakefront which ruined the walking path.

THE KEY ECONOMIC LANDMARKS WE PASSED

1.  Housing

Pending home sales are a noisy number to follow, but there was an interesting piece of information within the information. According to the real estate agents who were surveyed for the index, approximately 15% of the deals they were involved with did not close due to the buyer not being able to secure lending. Credit remains tight, however, there are signs we could see looser practices coming. Two weeks ago, regulators decided to remove a requirement for a 20% down payment in order to obtain a high-quality mortgage. Fannie and Freddie followed with an announcement that buyers could obtain lending for as little as 3% down. Hopefully the mortgage industry can contain itself this time around and not offer no money down, no proof of income loans.

Housing prices continue to moderate as the industry recovers. Monthly changes in the 20 city Case-Shiller composite have fallen sharply since March. The YoY change falls lower as each month passes, which means we are out of the bottom zone and will likely not see double digit gains in the future. As long as employment stays healthy, wages inch up, and lending loosens; softer prices should bring more buyers to the table.

2. Durable Goods: -1.3% vs. 0.5% est.

The headline number paints a worse story than the underlying data. Excluding the transportation sector, orders slipped 0.2% in September. The majority of the top level decline was attributed to a 3.7% decline in transportation orders. Business investment was weaker (-0.2%) so we will keep an eye out next month to see whether the trend is reversing or if spending cooled off after large increases earlier in the year. Growth on an annual basis appears to be strong. For now, we will consider the trend to be intact.

3. Q3 GDP: 3.5% vs. 3.0% est

We are starting to look a lot better on an annual basis than we thought we would, especially given Q1’s issues. We still are stuck in the low-2% YoY growth environment though. The last two quarters certainly help to bring us up to this level from where we stood in the spring but how do we move past it? QE ended and the global economy is consistently shaky. Where do we go from here? The U.S. economic engine appears to be catching its wind again, but it has been a slow and painful process. Q3 experienced growth from personal consumption, exports, and government spending. Inventories negatively contributed which was expected after a 1.42% increase in Q2.

4. Quick Hits

  • Chicago PMI: 66.2 vs. 60.0 est. – Manufacturing looking strong!
  • QE3 End: Monthly pace reduced to $0B from $15B

LAST WEEK’S MARKET IN THE REAR-VIEW:  “Less Tricks, more Treats”

If you pulled a Chicken Little on October 15th, you’ve probably had to blink twice last week if you looked at the S&P 500 Index’s closing price for the month. October was one of those months you should have only looked at the first day and the last day. If you paid too much attention to the in-between, you might have panicked. What appeared to be a straight shot down mid-month turned into a month of almost 2.5% in gains for the Index. On absolute point basis, the S&P 500 took a 150+ point dive to the lows and then recovered nearly 200 points to give a open-low-close range of around 350 points. In a reverse course of the action seen most of the year, small caps lead the way with mid caps and then large caps trailing behind. The Russell 2000 Index (i.e. small caps) flew to a 6.5%+ return on the month to bring the gap between large and small cap stocks to a much narrower 8.3% from a high of 12.6% reached early in the month. The question to answer now is “Why did we rally?” There are plenty of reasons to give here and I would not feel comfortable pinpointing a specific headline or event. Corporate earnings were good, Japan looks to be entering into more stimulus, the Fed here seems to still be on course for a mid-2015 rate hike, news from emerging and developed markets were better, investors bought the dip, etc, etc.

LOOKING THROUGH THE WINDSHIELD

Economic

A good chunk of the data is already out for the week but many reports remain on the schedule. Nonfarm payrolls will be a big focus on Friday as well as other employment numbers (wages, participation rate, etc.). I doubt we will see runaway wage inflation, but the market is jittery right now when it comes to rates so there are a lot of eyes on those types of numbers. ISM Non-manufacturing will notch another month above 50 and get closer to 60 consecutive months in expansion territory.

Market

A week of muted price movement would do us all well. I think we could use a breather after October’s wild ride. Time to reset, look to the future, and move forward with what is increasingly looking like a solid domestic economy. Keep a watch out for the dispersion between large, mid, and small cap stocks. We are firm believers of mean reversion here. Large caps could pull in or stay flat while smaller company stocks move higher. Fears about a higher USD impacting earnings for large multi-national companies will continue to give reason to buy small.

SCHEDULE

calendar 1103-1107

Weekly Drive: October 20th to October 24th, 2014

Halloween is here! There are a few more days to buy candy, carve a pumpkin, and figure out what costume to wear. Hope everyone has a safe and fun time on Friday.

THE KEY ECONOMIC LANDMARKS WE PASSED

1. Housing

News from the housing market continues to stir mixed emotions. Existing home sales increased to the highest annual rate for the year while new home sales barely squeaked out an increase off a lower than previously reported number for August. All cash deals and investor purchases ticked up a bit in September but remain lower than in 2013. In the various regions, the Midwest was the weakest with a decline of 5.6% while the West shot higher by 7.1%. Home buyers received an unexpected gift this year as rates fell nearly back to levels seen late last summer. Additionally, lenders are starting to relax standards ever so slightly. As prices rise, sellers will continue to enter the marketplace and investors will exit when distressed properties become more scarce.

New home sales took a breather after shooting higher in August and only remained positive due to a nearly 40K downward revision. Inventory levels over the last three months are better after dipping to a low of 4.4 months supply in May. Builders seem to be focusing less on building fewer more expensive homes (which has kept prices elevated). Median prices sank from $286,800 in August to $259,000 in September. The number of new homes sold for less than $200,000 accounted for 31% of the total last month compared to an average of 23% for the year.

Housing will reach a better balance when existing home prices edge up, new home prices compress, and supply of both are higher. The price gap stands at ~$50,000. Looking at Figure 1, you can see the gap has been stubbornly high in the last few years and well above the average level seen in the last housing boom.

Figure 1

price gap 1024

The Journal has a cool housing market tracker worth checking out.

2. CPI: 0.1% vs 0.0% est (MoM)

Even with the plunge in energy prices over the last few months, prices for consumers rose by 0.1% in September. Energy dropped 0.7% while food and shelter increased 0.3%. While the index for all categories is up 1.7% in the last 12 months and below the Fed target of 2%, there are areas heating up. Food and shelter are both up 3.0% in the same time frame. I have some level of concern about rising shelter costs because of the current housing market environment. It is going to take a few years to bring more first-time homebuyers back into the equation and get Johnny and Susie out of their parents’ basements. In the meantime, people will have to rent. Figure 2 below shows the jump in shelter costs

Figure 2

shelter cost 1024

LAST WEEK’S MARKET IN THE REAR-VIEW:  “LL Cool J was wrong”

In his famous song, “Mama Said Knock You Out”, the 90s rapper starts the song by saying “Don’t call it a comeback.” Last week looked like a comeback to me. Across the board, equities broke out of their bottom ranges and ended the week in a nice shade of green. Corporate earnings and upbeat economic data from aboard helped give a boost while fears of Ebola in the U.S. and shootings in Canada caused a few jitters.

Returns for the Week*

  • Small Caps: Russell 2000 Index: 3.37%
  • Mid Caps: S&P 400 Index: 4.18%
  • Large Caps: S&P 500 Index: 4.12%

*Returns represent price change

LOOKING THROUGH THE WINDSHIELD

Economic

Another month is about to end and 2014 is drawing to a close. We will see our usual dump of month-end economic reports this week, although some will hit the wires early next week (e.g. ISM Manufacturing). More consumer oriented data is on the docket as well so let’s hope our fellow citizens kept their wallets open for another month. I do not expect the Q3 GDP release to be a shocker on the downside and I think I speak for most when I say I hope to see a three handle. Chicago PMI will be a precursor to ISM next week. We are all awaiting data current enough to show whether the rising dollar and drop in eurozone growth are negatively impacting the domestic economy.

Market

The trajectory seems to be up for equities with volatility (as measured by the VIX) collapsing from highs reached two weeks ago. It is too early to say we are going to sustain these levels as the possibility of a test of lows is always in the works. The recent sell-off took us out of the trend channel when looking at a longer dated chart, but the bounce back has been sharp. A resumption of the prior trend too early would do little to quiet the bears in the crowd. Sometimes we get too caught up in the charts and the history instead of thinking about the why and the now. The difference between a chart looking good or looking bad could simply be a matter of scale or the time period selected.

SCHEDULE

calendar 1027-1031

Weekly Drive: October 14th to October 17th, 2014

THE KEY ECONOMIC LANDMARKS WE PASSED

1. Retail Sales: -0.3% vs. -0.1% est.

A bit of a bummer report but also not completely unexpected considering sales were up 0.6% in August. Excluding autos, sales were still down -0.2% for the month. A look at Figure 1 shows weakness across many categories, including gasoline stations and clothing stores (back to school shopping over) while electronics/appliances rose a heavy 3.4% (up 5.8% YoY). Fingers were pointed at the timing of the iPhone 6 release, a strong summer buying season for cars, and lower gas prices. The question now is whether we are setting the tone for a disappointing holiday shopping season or “one month does not a new trend make.:”

Figure 1

Retail Sales Sep14

2. Industrial Production: 1.0% vs. 0.4% est.

After declining in August, industrial production blew past estimates in September.Within the main industry groups, all three were up on the month as shown below.

  • Manufacturing 0.5%
  • Mining 1.8%
  • Utilities 3.9%

Utilities jumped largely in part to a warmer-than-average September which kept A/C’s running while manufacturing got back to its upward trend. On a capacity side, overall utilization rose by six-tenths to 79.3 which stands around a full percentage point below the 40 year average. Manufacturing is 1.4% off from it’s average so there is still plenty of room to go. Much has been said about the relationship between capacity utilization and inflation. At times, there is a higher correlation and pairing between the two and at other times, not as much. Recently, inflation remains muted while utilization is steadily increasing (Figure 2).

Figure 2

caputil sep14

3. Housing Starts: 1017K vs. 1008K est.

Housing starts are a choppy a number and while the absolute level gives you some indication of activity, a simple permit or beginning of a build means little. The sales numbers which follow are where attention should rest. For the time being, we’ll say housing continues to move forward and progress past speed bumps.

LAST WEEK’S MARKET IN THE REAR-VIEW:  “One, Zero, Decimal, Zero, Percent”

The technical gurus, perma-bears, and others can all finally be satisfied the market “corrected.” Futures reached a high of 2014.3 on September 19th and a low of 1813.5 on Wednesday (SPZ4 – Dec 14 contract) to barely squeak out a 10% down move. Volatility rose sharply to follow the move with the CBOE VIX Index cresting above 30 for the first time since the mess we saw in the fall of 2011. The S&P 500 on a OHLC view made a nearly 100 handle move on Wednesday with the intraday low reaching in the -3% range. Crude oil continues to get slammed with the WTI front month briefly trading a shade below $80. Most analysis pegs profitability for certain types of drilling at $80-85/barrel. We could start to see production coming offline as the oil industry deals with oversupply due in part to the two-headed beast of slowing China demand and improved domestic production (e.g. North Dakota’s shale boom). Treasuries also experienced a wild-ride with the 10 Year falling under a 2% yield. Wednesday was one of those days you put your horse blinders on if you are a long-term investor. These things happen, it is best not to get caught up in the countdown, graphics, talking heads, and other nonsense continually thrown at you from the media. You can read the recent posts from John Eckstein and Rob Stein to get more thought from Astor’s Investment Committee.

LOOKING THROUGH THE WINDSHIELD

Economic

As we move into the week before Halloween, the data is light and mostly focused on housing. Existing and new home sales will be the more important releases for the week with a check-in on CPI likely giving further confirmation of inflation running below the Fed target of 2%. Data points like these will be put on the back burner in the near term as attention is directed toward Europe, China, ISIS, Ebola, the Fed, etc. Unless there is a major surprise, do not expect an update on housing to provide ammo for any extended market move.

Market

Will last week prove to be the bottom of the sell-off? Time will tell, but the charts in certain areas of the market look favorable. Small caps are leading the charge from the lows (at the time of writing, nearly a 6% rise from the lows on 10/15). The one concern for me is we get too hot too quick. I would like to see a test of lower levels again before setting up for the next leg higher. I say this statement mostly because I know there are a good number of people who think we are still expensive and want to see period of lower prices. Appeasing the crowd now will lead to a better tomorrow.

SCHEDULE

calendar 1020-1024

Weekly Drive: September 29th to October 10th, 2014

I am a week behind so it is time to catch up. Economic reports were sparse last week so much of the discussion there will be focused on the week prior. Financial markets will be covered for both periods.

THE KEY ECONOMIC LANDMARKS WE PASSED

1. Nonfarm Payrolls: 248K vs. 215K est.

We got the report we needed to see after August’s disappointing print of 142K (subsequently revised to 180K). Payroll growth was strong in several areas of the economy as seen below in Figure 1. Continued hiring in construction, retail, leisure, and financial all bode well for the economy going forward. The labor participation rate fell slightly to 62.7%, a level last seen in December 1977. Part of the decline came from 97K people leaving the work force, but it is more important to focus on the job growth currently occurring. Over the last year, the U.S. economy has added ~220K jobs a month. The 6m moving average is back to decade high in 2006 which marked the top of job expansion before the economy tipped over into recession. The combo punch of a smaller work force and job growth has pushed the unemployment rate below 6%. On top of all the job additions, we are seeing earnings and hours move up. The Fed is keeping close tabs on the labor market because as labor slack dissipates, wage inflation is the next concern. As it tends to be a lagging indicator, the Fed could overshoot its stated 2% target without realizing.

Figure 1

NFP Sept

2. ISM Manufacturing: 56.6 vs. 58.5 est.

Manufacturing took a small step back but remains at a comfortable level for further expansion. Nearly all categories experienced a slower rate of growth other than prices and production (barely) which increased at a faster rate than the previous month. For now, it is a one month drop from a sharp run up in the summer. Keeping ISM around a 54-57 level over the next quarter will give us solid footing for 2015.

3. Personal Spending: 0.5% vs. 0.4% est.

Positive news from the consumer side with the latest spending and income reports. After initially printing negative, July’s spending numbers were revised to unchanged while income saw a 0.10% boost as well. August beat expectations of a 0.4% increase and matches up with the 0.6% increase in retail sales for the month (September retail sales will be released later this week). With the disparity between spending (0.5%) and income (0.3%), the national savings rate moved down to 5.4%. Consumers look a little stretched when you compare against historical numbers, but I need to do further analysis to determine the factors.

4. Case/Shiller 20 City Composite (YoY): 6.75% vs. 7.40% est.

On a headline basis, the readings from this report look bad over recent months. However, we need to view them in the proper context. After coming out of the bottom, home prices increased solidly and we are now reaching the point of stability. Prices are increasing month-to-month still. The YoY growth is slowing though as the market returns to a more normal state. In a vacuum, we are up nearly 7% from last year! I’ll take it.

LAST WEEK’S MARKET IN THE REAR-VIEW:  “Welcome to October!”

Stocks ran into more pressure two weeks ago as October kicked off. Spoos (S&P 500 futures) dipped below 1920 for the first time since mid-August as global growth concerns and domestic reports provided reason. German and U.S. manufacturing data disappointed on the 1st, but a better than estimated NFP report on the 3rd brought buyers back into the game to give major equity indices a breather. Small company stocks have had a tough year so far and last week was no different. The Russell 2000 Index touched the -10% from year highs level during the week. There were certainly plenty of things swirling around the headlines to cause a stock shakeup: rates, China, the ECB, ISIS, Ebola, and Russia.

The story continued throughout last week. To understand the mindset, one need look no further than the report from the IMF which included statements about “frothy valuations” and a cut of its global growth forecast. There is a mounting level of concern about Europe, especially with negative reports about Germany’s manufacturing industry and economic strength as a whole. The strong USD move over the last two months has also heightened the level of worry (stronger dollar means more expensive imports for foreign customers). On the silver lining side, weaker currencies abroad mean U.S. consumers will be able to import goods for cheaper. Domestic growth is looking optimistic so the net result could be more muted than some are expecting. Cheaper raw materials are not the worst thing (crude falling to lows last reached in late 2012). Commodities are facing a strong dollar and weaker demand so the picture there looks fairly miserable from a short term trading view. I think we can expect a rotation out of multinational corporations in the coming months as investors focus on domestic exposure. Treasuries saw aggressive buying as stocks were hit. We are approaching 2.25% on the 10 Yr which is far below where many expected us to be at the start of the year. Last year the story was a 100bps climb in yields, this year it might be a 100bps decline. As central banks overseas cut rates, there will only be further demand for U.S. bonds and the dollar. Certain parts of the equity complex got mashed, notably, tech stocks received punishment after Micron Technology (NYSE: MU) issued a statement about a slowdown in the semi space. Volatility rocketed higher over the course of the week with the CBOE VIX Index moving above 22 to end the week. The long-term average for the VIX since 1990 is around 20. I think we forget sometimes volatility does exist, especially after summers like the one we just had (VIX averaged roughly 12.5 from June to August). Volatility is healthy for markets as long as it does not reach extreme levels. Investors with time horizons beyond next week should focus on the bigger picture. Stocks tend to go up. Domestic fundamentals are strong. An economy with a 2-4% GDP is supportive of buying risk assets. Since 1990, the S&P 500 returned 2.67%* on average in the quarter following a positive GDP reading.

*Assuming dividends re-invested. Calculated with the S&P 500 Total Return Index

LOOKING THROUGH THE WINDSHIELD

Economic

Data is relatively light this week with the most important releases being retail sales, industrial production, and housing starts. The volatility within housing starts has widened out in recent months, but this week’s number will be important in showing whether the upward trend remains. The same goes for industrial production which tipped over in August.

Market

I am not expecting a pretty flower for the week. The way we closed on Friday did not point towards a weak of unicorns, rainbows, and pots of gold. Taking off my econ hat for a minute and putting on my chartist vest, the technical signs look like we are poised to test certain support levels. The cries for a 10% correction get louder each day. We would need to breach the 1817 level on the S&P to hit that mark based on closing prices for the Index. Support levels on the way down are 1900 (broken), 1850-1860, 1815 (April low), and 1750 (Feb low). Small and mid caps are negative on the year. The Dow Jones is flirting with the flat line. The NASDAQ and S&P 500 are a few percentage points above zero, but could cruise below in the coming weeks. All-in-all, I personally think this environment is going to be rather short lived and will set the market up for the next move forward. If Europe’s growth issues do not blow out and domestic growth keeps chugging along, there are fundamental reasons to own equities.

SCHEDULE

Calendar 1013-1017

Weekly Drive: September 22nd to September 26th, 2014

THE KEY ECONOMIC LANDMARKS WE PASSED

1. Housing:

A mixed basket of data last week for housing on a base level. However, even with the miss from existing home sales, there was a silver lining. The number of all-cash deals fell to 23% and the number of purchases from investors fell to 12%. Homeowners now have a better chance of maneuvering in the market and could find themselves with accepted offers instead of being bulled over by the deep pockets of cash investors. The housing market is starting to get back in balance. It could use help from the labor market (higher wages) and mortgage lenders (easing of standards). The rental market will only cool off when home ownership becomes affordable and viable again for the young professionals in their twenties who still live in mom and dad’s basement.

2. Durable Goods:  -18.2% vs. -18.0% est.

On a headline view, this report looks downright abysmal but then you remember last month was +22.5%. The entire drop was simply transportation coming back to earth after the massive surge in airplane orders (Boeing) in the previous month. Ex transportation, we actually had a really good showing. August was up 0.7% and July was revised higher by 0.3%. Orders and shipments in the “core” group (ex defense, ex air) were both positive and point toward further strength down the line. Unfilled orders and inventories both stand at historic highs for the data series.

3.  Q2 GDP: 4.6% vs. 4.6% est.

Not a lot to say here. The final estimate for Q2 printed in line with expectations and we can finally put to rest the winter drop/spring rebound conversation. The chances of holding a +4% GDP in Q3 and Q4 are slim, but it would be stellar to see a three handle or the high twos. Even if we pull in 2.5% growth for the remaining two quarters, we sit at sub 2% for the year…

LAST WEEK’S MARKET IN THE REAR-VIEW: Voila!…tility

On an absolute level, volatility (as measured by the CBOE VIX) is still low in comparison to its historical mean. However, last week we had a 20%+ spike in the index as stocks went on a roller coaster ride. The slope was down all week, even with a mid and end of week bounce. Thursday brought out the sellers in heavy fashion and red was the color of the day. It did not matter what size stock you were, on Thursday it was down, down, down. The S&P 500 and Russell 2000 both ended the day down over 1.5%. The Dow had the largest point drop since July 31st. Most of the downdraft was focused on global growth concerns. The U.S. economy is the shining star right now and thus, the dollar has been heavily bid. Commodities have suffered as a result with crude oil treading water above two-year lows.

LOOKING THROUGH THE WINDSHIELD

Economic

The deluge of data begins. With month end numbers and NFP Friday in the mix, I will be busy all week reading econ reports. Expect a lot from me in next week’s post. If I were to pick out two numbers I am focusing on this week, they would be employment within the ISM Manufacturing number and hourly earnings in the employment numbers on Friday. I personally think the United States is working towards a second industrial revolution and will pull workers from overseas back to the mainland. The competition in wages is starting to slim down and technological advances here (think 3D printing) are starting to give us a second wind. Wage growth, as I have said many times before, is important in respect to labor slack.

Market

It looks like the last few days of September are setting the tone for October, generally a month which invokes fears of a crash (you can thank 1987 for that one). Large cap stocks continue to widen the gap between their small cap counterparts. The rally in equities this year has been dominated by large companies. As of Friday, the spread was slightly over 11% with the Russell 2000 negative by nearly 3% for the year. Looking at the table below, you can see the divergence in market breadth. We are strong believers of mean reversion here at Astor. I am sure there is a group of traders out there who see an opportunity to place a spread trade in order to capture the reversion (i.e. Buy Russell, Sell S&P). Then again, there is always risk of a further widening. We have spent the last few years drinking from the Fed Fountain and it has been sweet. Soon we will have to scout for other sources of liquidity (no pun intended).

Market Breadth 929

SCHEDULE

Calendar - 929-103

Weekly Drive: September 15th to September 19th, 2014

THE KEY ECONOMIC LANDMARKS WE PASSED

1. Industrial Production: -0.1% vs. 0.3% est.

The week started off on a sour note with this disappointing production number. However, looking deeper into the release we get solace from the fact the entire decline was attributed to a drop in the automotive industry. After rising more than 9% in July, motor vehicles and parts fell by a shade greater than 7.5% in August. Excluding auto, production rose 0.1% in July and August. It was merely mean reversion taking course. Certain areas are seeing accelerating demand, such as semiconductors (up 9.9% YoY). In the grand scope of the environment, the report was okay. The decline in automotive was offset by the prior months gains and the continued improvement in other subsections. (Keep in mind Empire Manufacturing was through the roof at 27.54 vs. 15.95 est.)

2. CPI: -0.2% vs. 0.0% est.

meworry

A sharp drop in energy prices helped caused the first decline in MoM CPI since April 2013. Gasoline fell 4.1% in August. Core prices (excluding food and energy) were unchanged for the first time since 2010. However, there are signs of inflation slowing moving into the system. As the months move along, the rolling six month CPI on an annualized basis is staying near or above 2% which is the Fed’s target. Expect to see inflation coming through owners’ equivalent rent as the rental market will likely stay hot in the coming quarters.

3. Housing Starts: 956K vs. 1037K est.

Once again we have a disappointing number caused by a prior month spike. Housing starts are always a volatile number and this time around was no different. A 22.9% increase led to a 14.4% decrease. It happens. The trend is still moving in the right direction. The 3/6/12 month moving averages for the numbers of housing units started are look good. While we are no where near the 2000s peak in 2005, we are slowly moving back towards those levels. As always, I am keeping an eye on this data point as well as other housing numbers to see if spring strength stays intact while rates remain subdued.

LAST WEEK’S MARKET IN THE REAR-VIEW: Dip and Rip”

Coming into the week at month lows, the S&P bounced hard off support in the 1980 range to surge to new record highs. Weak economic data (i.e. industrial production) kept the market muted on Monday but comments from the FOMC in the middle of the week gave reason to buy. The Fed re-iterated it would keep rates low for a “considerable amount of time” which was well received. Disappointing housing numbers on Thursday gave more support for rates to stay low and therefore, asset prices to remain elevated. While the broad market held fairly steady on Monday, growth names took a hit. Tesla (TSLA) took a plunge after a note from Morgan Stanley which led to selling across similar high flying stocks.

LOOKING THROUGH THE WINDSHIELD

Economic

The coming week is split between two important segments of the economy: housing and production. If the housing numbers are in line with last week’s releases, there could be chatter about the market slipping. Unless there is a substantial drop in demand, we should see any amount of weakness as simply a market still trying to figure itself out. On the production front, durable goods for August will be hitting the wires on Thursday. The key number will be the nondef ex air report since transportation caused a huge spike last month. Headline estimates are for a -18% drop as orders normalize. Another look at Q2 GDP will round out the week and should cause little market movement. The forecast is for an upward revision.

Market

After a strong week in equities and a divergence between small/large caps widening out on Friday, the picture for this week is probably mixed performance and further focus on the high beta names (story of the year so far). As QE3 purchases reach the end of the line, look out for rate reaction moves in the coming weeks.

SCHEDULE

Calendar - 922-926

Weekly Drive: September 8th to September 12th, 2014

A little late in posting today, Monday’s can be hectic. Let’s jump right in and have some fun.

THE KEY ECONOMIC LANDMARKS WE PASSED

1. Retail Sales: 0.6% vs. 0.6% est.

Hello there shopper! We thought you went away. You were just hiding behind revisions it seems. A great August report coupled with an upward revision for July should close the door firmly on the question of spending tailing off. A drop in gas prices (shown best by the -0.8% decline in MoM sales) likely provided fatter wallets to be used at furniture and appliance stores, both of which saw 0.7% increases. Mild weather also probably added to the picture. Usually we all spend August indoors with AC/DC on blast…I mean the A/C. All-in-all, this report leaves me…bum bum bum THUNDERSTRUCK.

2. Consumer Credit: $26B vs. $17.35B est.

Much of the buildup in consumer credit lately has been from the auto sector and student loans. Both areas have at least triggered attention but most likely remain under high alert levels. It all comes down to affordability. As long as consumers are buying within their means, we are on the right track. The default rate has ticked up lately but is still far off from recession highs. Just another data point to keep an eye on. A healthy job market and rising asset prices will likely prevent a larger issue so until the environment flips upside down, there is no need to hit the big red panic button.

LAST WEEK’S MARKET IN THE REAR-VIEW: “Muted consolidation off record highs”

Stocks took a breather last week after hovering around 2,000 for a few days. A bit of worry has crept into the market in regards to the expected rate hike coming in 2015. Anyone else feel like we are waiting for a blockbuster movie? Depending on which side you are on, the tag line is either: “A chilling tale of tightening monetary policy coming to markets in the spring of 2015, The Ratepocalypse!” or “A forbidden relationship between a financial instrument and a recovering economy coming to markets in late-2015, “A Slow Rising Affair.” I digress. It is Monday…sometimes you just need to make yourself laugh a bit. There were actually a multitude of catalysts last week which both gave reason to sell and reason to buy, including Apple’s new devices, further sanctions against Russia, some M&A activity in the food space, excitement about Ali Baba’s IPO, and strong consumer reports. A 1% dip over the course of a week is a shoulder shrug, especially coming off year and decade highs. I’m sure CNBC has a sell-off special report queued up already but ignore the talking heads.

LOOKING THROUGH THE WINDSHIELD

Economic

Much of the focus for the week will be on the Fed as QE3 winds down to the last little bit and more guidance (hopefully) is given in regards to rates. Some housing numbers (starts, permits, etc) will show where the state of the market is as we leave the summer season and head into fall. Industrial production already came out and along with capacity utilization, was disappointing. These numbers will be covered next week.

Market

The minor setback in equity prices could see continuation this week based on technical indicators, the Fed, economic numbers, and a whole host of other variables. On the flip side, we could bounce off these levels and provide solid support for the move into the end of the year. Most price targets remain north of 2,000 for the S&P 500 with some near the 2,050 to 2,100 levels. Personally, I think we end comfortably on a 2,000 handle to bring in low double digit returns (assuming dividends re-invested) for 2014.

SCHEDULE

Calendar - 915-919