U.S. Home-Price Growth Warmed Up in August Home-price growth accelerated in August—with the Case-Shiller index rising 5.3% from the previous August—as a lack of inventory and low interest rates helped push prices to near-record levels.
(…) The 10-city index gained 4.3%, up from 4.1% last month, and the 20-city index gained 5.1% year-over-year, up slightly from a 5% increase in July. (…)
After seasonal adjustment, the national index rose 0.6% month-over-month, the 10-city and 20-City indexes rose 0.2% month-over month.
The national Case-Shiller index is now just a hair away from the record high set a decade ago in July 2006. (…)
The Federal Housing Finance Agency’s (FHFA) index of U.S. house prices increased 0.7% during August following an unrevised 0.5% July gain. The y/y change improved to 6.4% as the three-month increase rose to 6.2%, its best since April.
Always beware national averages in real estate as Bespoke Investment illustrates:
(…) The chart below compares current prices for each city to their peaks during the housing bubble in the mid-2000s. As of now, the National US index is just a hair below its prior bubble highs, which is an amazing thing. The 20-city composite is still 7% below its prior highs, while the 10-city is still 9% below. Even still, seven of the twenty cities tracked have seen home prices rise above their prior housing bubble highs, and Denver and Dallas prices are more than 30% above their prior highs.
The main cities that still have a ways to go to get back to their prior highs are Las Vegas, Phoenix, Miami and Tampa. These are areas of the country that saw the most speculative prices during the housing bubble, and they also saw the biggest crashes when the bubble burst. (…)
Philadelphia Fed Index of Nonmanufacturing Business Is Steady; Expectations Sag
The Federal Reserve Bank of Philadelphia reported that its October Index of Nonmanufacturing Sector Activity at the company level was little changed at 16.3, the lowest level since July 2015. It remained down sharply versus 53.9 in February 2015. The expectations index for general activity at the company level fell back to 40.4, its lowest level since June. These diffusion indexes are seasonally adjusted.
Declines in the component readings were broad-based. Lower new orders and lower shipments, as well as a weaker full-time employment index and hours-worked, prompted the deterioration in this month’s figure. The part-time employment reading remained depressed. Wage & benefit costs rebounded to the highest level since October 2014. Capital expenditures on equipment and software increased after a sharp September decline.
Markit’s flash U.S. Services PMI report will be released later today.
POSITIONING?
Russian crude production jumped as new projects became operational. Analysts remain skeptical about the November Russia/OPEC production “cuts.” (The Daily Shot)
In addition to Iraq, the second-biggest exporter in the group, Iran has already sought to exclude itself. Output is also recovering from fields in Nigeria and Libya, two more countries that were exempted from the Algiers deal because violence has wrought havoc in their oil industries. Taken together, more than a third of OPEC’s production now stands outside the plan. (…)
In a best-case scenario — based on Nigeria meeting its target to restore production, Libya maintaining recent improvements and Iran, Iraq and Venezuela staying at September levels — reductions of 1.3 million barrels a day would be required to meet the top end of the Algiers target. In a worst case, where Iran, Iraq and Venezuela produce more than they did last month, that rises to over 2 million barrels a day, based on Bloomberg calculations. (…)
EARNINGS WATCH
- 172 companies (44.4% of the S&P 500’s market cap) have reported. Earnings are beating by 6.2% while revenues are surprising by 1.0%.
- Expectations are for revenue, earnings, and EPS of 2.6%, 0.1%, and 2.2%, respectively.
- EPS is on pace for +5.6%, assuming the current beat rate for the remainder of the season. This would be +9.3% excluding Energy. (RBC)
Much of today’s media focus is on Apple’s results but yesterday was not a good day overall. Of the 49 companies that reported, 65% beat (vs 76% prior) and 27% missed (vs 17%). Ex-Financials, yesterday’s beat rate was 59% (vs 71%).
Insider Stock Buying Drops To Lowest Level In Five Years
(…) in a new report released today, TrimTabs analyzed buying patterns by corporate insiders and found insider buying was “almost non-existent in October.” Looking at Form 4 filings with the Securities and Exchange Commission, TrimTabs reveals that insider buying has dropped to just $110 million in October through Friday, October 21. This was the lowest monthly total going back to 2011. (…)
TrimTabs added that as insider buying slumps, U.S. companies are also committing less cash to repurchase shares. Stock buyback announcements fell to a nine-quarter low of $115.0 billion in the third quarter, and they would have been much lower without a single $40 billion buyback for Microsoft. Buybacks have totaled just $8.2 billion this month through Friday, October 21. (…)
RISK/REWARD ANALYSIS
Aetna CEO Says Young People Pick Weekend Beer Over Obamacare
Healthier people will avoid buying Affordable Care Act health insurance plans as premiums climb, threatening the stability of the market, Aetna Inc. Chief Executive Officer Mark Bertolini said.
“As the rates rise, the healthier people pull out because the out-of-pocket costs aren’t worth it,” Bertolini said at Bloomberg’s The Year Ahead Summit in New York. “Young people can do the math. Gas for the car, beer on Fridays and Saturdays, health insurance.”
Premiums for health plans sold to individuals under the ACA, known as Obamacare, are going up by about 25 percent on average for next year. Bertolini said that as costs rise, more individuals will decide not to buy health plans. That’ll push premiums even higher, unless a new president and lawmakers can find fixes for the new markets created by the 2010 health law.
“What happens is the population gets sicker and sicker and sicker and sicker,” Bertolini said. “The rates keep rising to try and catch it. It’s a fruitless chase, and ultimately you end up with a very bad pool of risk.” (…)
Insurer Aetna itself is largely ending sales of ACA plans, because it’s recording hundreds of millions of dollars of losses on the policies. The insurer will offer individual coverage on the ACA’s exchanges in four states for next year, down from 15. (…)
(…) The fourth open enrollment period, set to begin on Nov. 1, will be a critical one for the law. In some states and counties, consumers who have or are seeking insurance through government exchanges or direct purchase with insurers will see higher premiums and fewer insurers offering individual policies. Results from the first quarter of 2017 will illustrate how these rate increases may affect the percentage of U.S. adults who remain without health insurance.