The markets looked a little dicey all week with U.S. equities pulling back over 1% on Tuesday for the first time this year. Initially, stocks moved higher yesterday in anticipation of the House vote to repeal and replace Obamacare, but pulled back and closed lower when Speaker Ryan delayed to vote until later today, Friday, March 24, 2017, as observed by Rodney Johnson, Dent Research. The markets and the world are on hold waiting to see if and how the U.S. House votes on health care benefits. I think Jonathan Golub at RBC Capital Markets helps put things in perspective with his observation that the ‘rally we’ve seen in stocks is more about earnings ant the economy than hope related to Trump’s agenda’ at Yahoo Finance on March 24, 2017. So to avoid distractions the ball to keep your eyes on is corporate earnings.
Thanks to Dent Research, provided here is our weekly information roundup ending the week of March 24, 2017. We start each subject with what you hear in the news and finish with what that information means to you. We hope this information will help you separate the noise from the news.
U.S. Equity Markets Fell More than 1% as Yields Dropped… Worried that President Trump will have trouble getting legislation through Congress, investors sent equities lower as they bid for bonds.
What it means – Gee, Congress is a sticky mess. Who knew? In front of the vote on healthcare, investors sold health-related stocks, estimating that President Trump won’t get the votes he needs and such firms will get hit.
The dim view of his legislative clout also extended to banks, as investors realized that tax cuts might be farther away than they expected. Banks were also hurt – and bonds were helped – by investors who took the Fed’s rate hike schedule as dovish. The 5-year Treasury bond yield dipped below 2%, while the 30-year rate fell below 3%.
February Existing Home Sales Down 3.7% From January, Up 5.4% Over Last Year… Single-family home sales are up 5.8% over last year, whereas condo sales are up just 1.7%.
What it means – Pricing remains strong, with the median sale price up 7.7% over last year. Still, the figures were at the low end of estimates and highlight the current questions that hang over the real estate market. The widening gulf between the growth rates of home prices and wages can’t go on forever, it’s just a matter of which one changes course, and when.
New Home Sales Beat Expectations, up 6.1% in February… The annualized rate reached 592,000.
What it means – The rate of sales was impressive, but it came at a cost. Home-builder concessions drove the median price down 3.9% last month to $296,200, putting the annual change in new home prices at negative 4.9%.
Another question mark on this report is the weather. February was exceptionally warm, allowing for more traffic in new homes than usual, which should have driven sales higher.
February Durable Goods Up 1.7%, Ex-Transportation Up 0.4%... Both measures slightly missed expectations.
What it means – January’s numbers got a boost in the revision, but the current figures point out that the economy is not breaking out to the upside. The real data still sits in core capital goods, where January’s 0.4% decline number was revised to 0.1%, and the February report was minus 0.1%.
In other words, business investment has been flat since the end of the year. So far, all the renewed confidence has not resulted in extra spending.
U.S. Crude Oil Inventory Up by 5 Million Barrels Last Week… This pushed the total to 533 million barrels.
What it means – Another week, another record amount of oil in storage. The inventory of gasoline and distillates fell slightly, but no one cared. The steady increase in oil points out that there’s a lot of the black gold sloshing around the world, even though OPEC and its co-conspirators have purportedly held down production for almost five months.
With the price of oil back under $50 as U.S. frackers come back on line, OPEC has a decision to make. Does the group try to extend its production cuts beyond the May expiration, or does it just throw in the towel and call it a day?
Chances are, they’ll take the middle path. They will extend the production cuts, but in name only. The members will cheat, each wanting to pad its pockets before the price of oil drops lower.
Sears Filing Reveals Concern About the Company’s Survival… The firm’s first-quarter 10k filing noted the possibility that the business won’t be able to continue is an ongoing concern.
What it means – This makes either the SEC or the management of Sears the last people to know, because anyone who has walked through a Sears store in the last 10 years could tell you that the place is out of step with the direction of retailing in this country, which is moving online. While Sears might be a poster child for this situation, it’s certainly not alone. All retail brook and mortar operations may indeed see massive change in the near future.
Most department stores are in the same boat, with Macy’s closing more than 100 stores and J.C. Penney floundering. It’s sad to see Sears go, but it’s worse to see it hang on, with every store a shell of its former self at the end of a dying mall.
60% of Americans ‘Very’ or ‘Somewhat’ Confident About Retirement Plans… The latest numbers from the Employee Retirement Benefit Institute are down from the 70% who answered the same way in 2007, but up from 52% in 2012.
What it means – This is one of those things that make you go, “Hmm.” While 60% of Americans might be very or somewhat confident of their retirement plans, we also know that 66% of them have less than $50,000 saved for retirement. And of those that have so little saved, half of them have saved exactly zero for retirement. Houston, we have a problem!
Somewhere in the mix is a bunch of people who haven’t saved much, but are pretty confident that things will work out anyway. Somehow, I think we’ll all end up paying for these people through taxes in the years to come.
Next Week – The last week of March is light on economic reports, so politics will take center stage as the administration and Republicans in Congress continue to hash out a new healthcare bill.
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