Still travelling along the coast of Nova Scotia…
Sales of existing homes fell 1.3% (+2.1% y/y) during July to 5.440 million units (AR) from a slightly revised 5.510 million in June. It was the lowest volume of sales since August 2016. Expectations were for 5.570 million sales in the Action Economics Forecast Survey.
Sales of existing single-family homes fell 0.8% (+1.7% y/y) to 4.840 million while sales of co-ops and condos dropped 4.8% (+5.3% y/y) to 600,000.
By region, total existing home sales fell the most in the northeast, 14.5% (-1.5% y/y), to 650,000 from 760,000 in June. Sales in the Midwest fell 5.3% (-1.6% y/y) to 1.250 million from 1.320 million. But sales improved in the west, 5.0% (+5.0%) to 1.260 million from 1.200 million, and those in the south gained 2.2% (+3.6% y/y) in July to 2.280 million from 2.230 million in June.
The median price of all existing homes sold decreased 1.9% (6.2% y/y) to $258,300.
The number of homes on the market was down 1.0% (-9.0% y/y) to 1.92 million. There was a 4.2 months’ supply of those homes available for sale, up from a recent low of 3.5 months in January, but down from 4.8 months a year ago.
Housing is weak, sedan sales have been declining and now, SUV sales are slowing:
And this won’t help, neither the Midwest economies nor SUV sales:
(…) Such a haul would add to a global glut of grain that has pushed down crop prices and is expected to drag down U.S. farm incomes in 2017 for the fourth year in a row. (…)
That’s bad news for farmers squeezed by high seed and land costs and rising farm output in countries like Brazil and Russia. The U.S. Department of Agriculture expects farmers to make half as much money this year as they did in 2013. (…)
Speaking of nature, naturally:
Ford to Look Beyond Credit Scores in Sales Push The auto maker’s financing unit has decided to change its approval process to look beyond credit scores in an effort to pump up sales. By assessing credit in new ways, it hopes to be able to better predict risk among a broad array of borrowers.
Ford Motor Credit says it is looking at ways to increase loan and lease approvals for applicants with limited credit histories. These consumers are often denied credit because they lack a history of managing debt and as a result have low credit scores. Ford’s credit division plans to review new data to try to determine whether these customers, as well as those with more robust borrowing histories, are likely to repay their loans. (…)
A string of smaller financing providers, including credit unions and online lenders, have also been assessing factors outside of credit reports and scores for applicants with thin credit records. (…)
Wells Fargo & Co.’s auto lending volume fell 45% in the second quarter from a year earlier due to tightening underwriting standards. Ally Financial Inc.’s auto loan originations fell 8.5% for the same period. (…)
Ford Credit says it doesn’t think its decision will lead to more losses because it will be reviewing more data than it currently checks on loan applicants. While the overall result will likely be more loan approvals, there will be some tightening as well as because some borrowers who currently get approved might not under the new model. (…)
Factors such as whether applicants supplied the same cellphone number on previous loan applications and whether they have occupational licenses could help to green-light their loan applications, said Mr. Moynes. (…)
Business Investment Gains Renewed Momentum Demand for long-lasting factory goods plunged in July, but a sharp drop in aircraft orders masked underlying signs of strength.
Durable goods orders fell 6.8% in July, but the decline was driven by aircraft orders, which had surged the month before. Stripped of the volatile transportation category, orders were up 0.5% from a month earlier and up 5.6% from a year earlier.
Orders for core capital goods, which exclude aircraft and defense and which many economists use as a proxy for broader business investment, rose 0.4% in July. They were up 3.5% in July from a year earlier. They bottomed in June 2016 and have risen six times in seven months. That pickup in business investment marks the best run since 2010, when the U.S. was coming out of recession. (…)
U.S. business investment rose at a 5.2% pace during the second quarter, following a 7.2% increase in the first quarter.
Haver Analytics’ Rubert Brusca remains prudent:
(…) Looking at the diffusion of sales acceleration (% sectors with sales accelerating), we find that sales are accelerating in 57.1% of the sectors over three months, in 42.9% over six months, and over one year orders accelerate in 85.7% of sectors. Those sector results are pretty solid-looking metrics.
However, when we weight the results for sector size, we find that the value of sales in sectors that are accelerating accounts for only 47.2% of shipments over three months, 17.8% over six months and 44.5% over 12 months. Acceleration is not really as important or broad-based when size is accounted for. It is mostly the smaller sectors that are doing the best for now.
Approaching risky September, the earnings tailwind is strong as Thomson Reuters reports:
Through August 25, 491 companies in the S&P 500 Index have reported earnings for Q2 2017. Of these companies, 73.5% reported earnings above analyst expectations and 17.7% reported earnings below analyst expectations. In a typical quarter (since 1994), 64% of companies beat estimates and 21% miss estimates. Over the past four quarters, 71% of companies beat the estimates and 19% missed estimates.
In aggregate, companies are reporting earnings that are 5.5% above estimates, which is above the 3.1% long-term (since 1994) average surprise factor, and above the 4.9% surprise factor recorded over the past four quarters.
IT and Utes provided the bulk of the unusual surprises in Q2:
Through August 25, 490 companies in the S&P 500 Index have reported revenues for Q2 2017. Of these companies, 69.0% reported revenues above analyst expectations and 31.0% reported revenues below analyst expectations. In aggregate, companies are reporting revenues that are 1.1% above estimates.
The estimated earnings growth rate for the S&P 500 for Q2 2017 is 12.1%. If the Energy sector is excluded, the growth rate declines to 9.4%.
The estimated revenue growth rate for the S&P 500 for Q2 2017 is 5.1%.. If the Energy sector is excluded, the growth rate declines to 4.2%.
Margins are up strongly with and without Energy. S&P data put operating margins at 10.22% in Q2, a record, and up from 9.03% in Q2’16. This in spite of Energy margins one third of their previous highs. Margins are up YoY in all sectors except Consumer Discretionary.
Companies are upbeat on Q3 with more positive and fewer negative pre-announcements so far than at the same time during Q2’17 and Q3’16.
Trailing EPS are now $125.98, up 9.4% YoY and a strong +6.7% from March 2017.
The S&P 500 Index is thus at 19.4x trailing EPS and the Rule of 20 P/E is at 21.1, 5.5% above the “20” fair value level. This is down rom 22.3 last March. TR estimates that 2017 EPS will reach $131.64 which would bring the Rule of 20 P/E to 20.3.
(…) Bearish sentiment has seen an even more pronounced move, rising from 32.8% up to 38.29%. That’s the largest reading for the bearish camp since mid-April. Also outside of a few weeks in the Spring where bearish sentiment spiked higher, you have to go all the way back to early 2016 to find a period where bearish sentiment was higher. (…)
The next several charts are from Ed Yardeni:
- Investors’ Intelligence Sentiment does not show more bears…
- The Put/Call ratio seems to be showing more bears:
- Volume keeps weakening:
- Transports are weak:
And surprises remain negative:
- There seem to be a few bears among bankers: Wall St bankers sell own shares as Trump rally reverses Sales by insiders at big US lenders suggests former optimism about economy and policy is fading
According to the FT, insiders at the big six banks by assets have in total sold a net 9.32m shares this year. Even excluding Warren Buffett’s big dumping of shares in Wells in April, sales by insiders outnumber purchases by about 14 to one.
But Lowry’s Research remains in the bull camp:
(…) As of the Aug. 18th low in the S&P 500, 44.4% of OCO small caps were down 20% of more from their highs vs. 18.3% of OCO mid caps and just 6.8% of OCO large cap stocks.
(…) divergences between the OCO Adv-Dec Line and the S&P 500 have emerged, on average, 4-6 months prior to the final bull market high. And, despite the current weakness among small caps, no significant divergence has yet appeared. (…)
In summary, although small caps are exhibiting widespread signs of weakness, it would be premature to conclude this weakness is a preamble to the appearance of the more timely indications of an approaching major market top. For now, small cap weakness serves primarily as a reminder that selective buying is becoming increasingly important, with an emphasis on the strongest stocks, principally among large caps.