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By HaleStewart August 28, 2016 8:19 am
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US Equity and Economic Review: We're Probably Going a Bit Lower From Here

     Housing news was mixed.  New home sales increased 12.4% M/M and 31.3% Y/Y.  This is one of the strongest gains for this series during this expansion.  But existing home sales fell 3.2% M/M and 1.6% Y/Y.  The following chart, which converts both figures to base 100, compares the 2 figures for the last 12 months:

Both are still significantly off their post-recession lows.  Still, despite being the smaller market, new home sales are by far the stronger of the two.   

     Durable goods orders had their best report in 3 months:

New orders for manufactured durable goods in July increased $9.7 billion or 4.4 percent to $228.9 billion, the U.S. Census Bureau announced today. This increase, up following two consecutive monthly decreases, followed a 4.2 percent June decrease. Excluding transportation, new orders increased 1.5 percent. Excluding defense, new orders increased 3.8 percent.

But despite the rise, this data series has moved sideways for the last few years:

     The second report of 2Q GDP still disappointed, with a small 1.1% rise.  Little changed from the first report: consumer spending was still very strong (+4.4%) while investment remained very weak (-9.7%).  GDI was a suboptimal .2%, but sales to domestic purchasers was 2.2%.  Going forward, the Atlanta Fed is predicting GDP growth of 3.2% while the NY Fed is forecasting a slightly lower 2.8%.

     Economic conclusion: this week’s news was slightly positive.  The new homes market’s very strong gains were clearly the best news.  Existing home sales, while declining, are moving sideways, making this metric a neutral.  Durable goods rebounded from recent weakness, which is positive, but are still moving sideways.  While first quarter growth remained weak, this was a known quantity.  And, it was highly doubtful we’d see a massive, upward revision.

     Market overview: The market was mixed this week.  The SPYs and QQQs were down (-.57% and -.41%, respectively) while the IWMs were up slightly.  But the overall trend is slightly negative.  Starting on Tuesday, the SPYs 5-minute chart moved lower while the 30-day QQQs chart is forming a rounding top.  And the daily SPY chart shows that, after breaking through to new highs, prices have drifted lower while momentum is declining:

The reason for the weak growth is simple: the market remains expensive on both a current and forward PE basis.  While 2nd quarter earnings were better than hoped, that’s a relative statement; they were really “less bad” than previous quarters.    



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