Housing Market Stalls in September Existing home sales fall, dimming turnaround hopes
Sales of previously owned U.S. homes fell 2.2% in September from the previous month to a seasonally adjusted annual rate of 5.38 million, the National Association of Realtors said Tuesday. (…)
The median sales price for an existing home in September was $272,100, up 5.9% from a year earlier, the strongest pace of appreciation since January 2018. The supply of homes on the market declined 2.7% from a year ago, according to NAR. (…)
The average interest rate on a 30-year fixed-rate mortgage at the end of September was 3.64%, down from about 4% six months earlier, according to Freddie Mac. (…)
Haver Analytics adds:
Existing home sales fell throughout the country last month, Sales fell 2.8% (+1.5 y/y) in the Northeast to 690,000 after a 7.6% August gain. Sales in the Midwest backpedaled 3.1% to 1.270 million, unchanged y/y, reversing August’s increase. Sales in the South fell 2.1% (+6.0% y/y) to 2.280 million after a 0.9% rise in July. In the West sales eased 0.9% (+5.6% y/y) to 1.140 million following a 2.5% decline.
(…) robust mortgage applications (see chart from last week) point to improvements in home sales going forward. (The Daily Shot)
Source: Pantheon Macroeconomics
I don’t know how PM readjusts applications. Here’s the raw unadjusted data from CalculatedRisk:
Some U.S. electronics factories start layoffs as trade tariffs hit U.S. electronics factories are investing less and slowing hiring or laying off workers in some cases due to the rising costs of trade tariffs, according to an industry survey set for release on Wednesday.
The IPC, a global electronic industries trade association, found that nearly a third of all the dollar value of what its members with U.S. operations import has been hit by increased costs from the protracted U.S.-China trade war. (…)
The survey from the IPC, based in Bannockburn, Illinois, found that one in five companies with U.S. operations said they were investing less in the United States due to the new tariffs. About 13% said they were cutting hiring or reducing headcount. (…)
DuBravac said many association firms had indicated they were leaving China, but “it doesn’t appear from our results that a lot of that is flowing back to the U.S.” Rather, the focus is on moving to other low-cost countries, including Vietnam and Malaysia, he said. (…)
The IPC survey found many companies were struggling to pass along tariff costs, with more than a third saying they could not increase their prices to compensate for them.
Nearly 70% said tariffs had eroded their profit margins, according to the survey, which also said just over half of companies were now sourcing from countries outside China to avoid tariffs.
From Real Investment Advice blog:
If you are a bull, what is there not to love?
- The ECB announced more QE
- The Fed reduced capital requirements and initiated QE
- The Fed is cutting rates
- A “Brexit Deal” has been reached.
- Trump, as expected, caved into China
- Economic data is improving
- Stock buybacks
Despite a long laundry list of concerns, as stated, we remain equity biased in our portfolio models currently for two primary reasons:
- The trend remains bullishly biased, and;
- We are now entering into the historically stronger period of the investment year.
The data bears out the risk/reward of summer months:
“The chart below shows the gain of $10,000 invested since 1957 in the S&P 500 index during the seasonally strong period (November through April) as opposed to the seasonally weak period (May through October).”
It is quite clear that there is little advantage to be gained by being aggressively allocated during the summer months. (…)
We remain bearish on the long-term returns due to mountains of historical evidence that high valuations, coupled with excess leverage, and slow economic growth generate low returns over very long-periods of time. However, we are also short-term bullish on equity-risk because of stock buybacks, momentum, Central Bank interventions, and seasonality. Also, sentiment has gotten short-term very negative.
(…) statistical analysis clearly suggests probabilities outweigh the possibilities. Longer-term, statistics also state prices will take a turn for the worse. However, as portfolio managers, we can’t sit around waiting for something to happen. We have to manage portfolios for what is happening now. It is always the timing that is the issue, and history shows there will be little warning, fanfare, or acknowledgment that something has changed. (…)
Lance Roberts is a smart fellow and does good work. He has a way to display all possibilities, short, mid and long term, however opposite they me be, covering all bases.
Charts on seasonality are all over the place currently and one cannot dispute their statistical results and appeal. Just for fun, I counted the number of times the S&P 500 Index ended up negative in the months following the October close since 1950: 19 times out of 68, or 28% of the times. Some were pretty small losses like –3.8% in 1959 or –4.0% in 1994 but some ended up quite nasty like -20% in 1961, –29.7% in 1968. Some also were near the start of a true bear like –43% in 1972, –41% in 2000 and –57% in 2007.
Interestingly, drawdowns post October became less numerous in the most recent 34 years which explains the hockey stick in cumulative returns post 1985.
In closing on this, there is one pretty basic thing not to love if you’re a bull. Read on:
EARNINGS WATCH
This earnings season is still not very merry with 20% of S&P 500 companies having reported:
As of Tuesday morning, we had 98 reports in, an 83% beat rate, a +4.2% surprise factor and a –2.9% blended growth rate for the quarter, down from –2.2% on Oct. 1. Actual earnings growth for the 98 companies having reported is –0.7% on revenue growth of +2.9%.
By comparison, after 104 reports during Q2, the beat rate was 790%, the surprise factor +5.3% and the blended growth rate +1.1%, up from +0.3% on July 1. Actual earnings growth for the 104 companies having reported was +8.1% on revenue growth of +2.7%.
Trailing EPS are now $162.65, down 1.0% from $164.31 at the end of September and down 0.4% from $163.24 after 43 reports during Q2.
People are currently spending a lot of time trying to figure whether a recession is coming or not in order to call the equity market. It is better to watch earnings, remembering that the S&P 500 Index is 98% correlated with trailing EPS since 1950. The nasty thing with earnings downturns is that we never know when they will stop and how low earnings can fall.
And since we looked at seasonality above, keep in mind that since 1960, 5 of the 8 bear markets started between October and January and ended with drawdowns averaging 39.2%…
What we know, currently, is that
- trailing EPS peaked at $164.43;
- 5 sectors are experiencing declining earnings so far;
- revenue growth is slowing (4 sectors are negative);
- margins are declining under cyclical pressures from slow revenue growth and rising labor costs;
- margins are under pressure by secular pressures from changing supply chains;
- financial leverage is extreme, particularly among small and mid caps;
- the fed overtightened and is now easing but with weak ammo;
- nobody really knows when and how the trade war with China will end.
The Stealthy Bear Stalking the Dow Almost every measure other than the S&P 500 suggests a bear market started last year. Dig into the S&P, and it is sending a deeply downbeat message, too.
(…) Investors who picked smaller companies have had a truly miserable time, as the S&P gains all came from its largest members. On an equal-weighted basis the index is up just 1%, and the flawed Dow Jones Industrial Average is up 3.7%.
Meanwhile the small-stock Russell 2000 index is down 3.6% from last January through Monday. By contrast, the Russell Top 50 Mega Cap index is up 5% over the same period. (…)
The lack of exuberance is reflected within the S&P. Investors have been buying sectors that are most able to ride out a weak economy and are avoiding those that are most exposed to economic growth. The industrials, financials, energy and materials sectors are all down since January 2018, reflecting economic weakness. (…)
What has to happen for the stealth bear market to turn into a real bear market? A U.S. recession is the most obvious reason to buy even low-yielding safe assets, as investors switch from seeking a return on their investments to worrying about the return of their investments.
Faced with falling profits, dividend cuts and highly leveraged listed companies, fear of a recession will show there is an alternative, just as it has elsewhere. (…)
(Morgan Stanley via Isabelnet)