I am travelling this week. Postings will be more limited.
New Home Sales Collapse In December As Trump Rate Surge Hits
Existing Home Sales Fell 2.8% in December U.S. home sales slid in December, a sign that rising prices and higher mortgage rates are taking a bite out of the housing market.
Sales in December rose 0.7% compared with the same month a year earlier. The weak annual change partly reflects a strong December last year due to new federal mortgages rules delaying some November closings by a few weeks.
Inventory dropped 11% at the end of December to the lowest level since the NAR began tracking all types of supply in 1999. (Chart from Haver Analytics)
U.S. FLASH MANUFACTURING PMI: New orders expand at quickest pace since September 2014
- Sharp increase in new work leads to faster growth of output and purchasing activity
- Growth in new export work remains muted
- Pace of job creation softens slightly
The seasonally Markit Flash U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) posting 55.1 in January, up from 54.3 in December, to signal a marked upturn in the health of the sector that was the strongest since March 2015.
The solid improvement in business conditions was largely driven by sharper increases in output and new orders, which rose at the fastest rates in 22-and 28-months respectively. At the same time, companies raised their purchasing activity at the steepest rate since early 2015 and increased their payrolls further in order to meet greater production requirements. Positive expectations around the demand outlook were highlighted by further increases in stocks of purchased items and finished goods, with the latter increasing at the quickest pace since the series began in early 2007. Optimism around the 12-month outlook for production also improved at the start of the year, and reached its
highest level since March 2016.
The upturn in new business appeared to be led by stronger domestic demand, as new export work rose only slightly at the start of 2017, as has been the case in each of the past four months. (…)
Companies reported a renewed deterioration in average vendor performance during January, with some panellists mentioning that this was due to suppliers being unable to keep up with demand. That said, the rate at which delivery times increased was modest overall.
(…) companies raised their selling prices for the fourth successive month, albeit at a moderate pace that was similar to that seen in December.
TAX REFORM (Via the Daily Shot)
While the House Republican plan is to repeal interest expense deductibility, the Trump plan would disallow it only if a company chooses the 100% (year-one) expense of investments. This qualification would permit highly leveraged firms (including Trump’s own businesses) to roll their debt without the interest tax hit.
Source: Goldman Sachs, @MattGarrett3
EARNINGS WATCH
Earnings Repeat Their Role as Market Elixir
(…) The S&P 500 Index surged to a record Wednesday and the Dow Jones Industrial Average jumped past 20,000 as results from Boeing Co. to Seagate Technology and Huntington Bancshares Inc. surpassed analyst forecasts. Profits in the S&P 500 are on pace to rise at the fastest pace in two years, welcome relief for investors facing the highest valuations since the aftermath of dot-com bubble.
The S&P 500 has advanced 1.3 percent since the reporting season began three weeks ago, as 77 percent of companies beat estimates. The benchmark has posted gains over the six-week earnings stretch every quarter for four years, posting an average advance of 2.7 percent, data compiled by Bloomberg show.
- All 11 industry groups have reported positive profit surprises, except for phone-service providers; energy and technology companies led the pack, with a beat ratio of at least 6.4 percent, data compiled by Bloomberg show
- Earnings expanded 6.3 percent among companies that have announced results, a rate that if sustained would make this quarter the best since September 2014
- Technology shares showed the most positive reactions to earnings surprises, with the group rising an average 1.9 percent on the first day post announcement
Here’s the tally from RBC. The earnings beat has actually diminished from +4.0% 3 days ago to +3.1% as of last night. Ex-Financials: +1.9%.
- 120 companies (32.0% of the S&P 500’s market cap) have reported. Earnings are beating by 3.1% while revenues are missing -0.1%.
- Expectations are for revenue, earnings, and EPS growth of 4.0%, 4.7%, and 6.6%, respectively.
- EPS is on pace for 8.7%, assuming the current beat rate for the remainder of the season. This would be 7.2% excluding the benefit of easy comps at AIG and GS.
Using Thomson Reuters’ estimate for Q4, trailing EPS will total $118.24 in 2016. On that basis, the S&P 500 is selling at 19.4x trailing earnings. The Rule of 20 P/E is 21.6.
