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Wall Street Strategies has been providing independent stock market research since 1991 to individual, retail and institutional clients through a balanced approach to investing and trading. Charles Payne, our founder and chief analyst, is routinely sought after for his stock market, political,... More
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  • Yellen Into The Weekend - By Jennifer Coombs

    As much of America dusts off the grill to kick of the first unofficial weekend of summer, the stock market has one more worry session to get through before all can relax for a while. A speech from Federal Reserve Chair Janet Yellen and the announced consumer inflation data (NYSEARCA:CPI) will guarantee that traders on the Street will have more to focus on today than in years prior. Although trading desks will be lightly staffed, all eyes and ears should be on Fed Chair Janet Yellen's speech in Rhode Island which began at 1:00PM EST. Over in Europe, the European Central Bank (ECB) President Mario Draghi reiterated his call to euro zone countries to reform their economies in light of the stress befalling Greece. At the same time, the Chinese stock market came roaring back overnight, continuing its yearlong rally and renewing optimism among consumers.

    In advance of Yellen's speech, the market was busy digesting the consumer price index report, and it's not what the Street wanted. It's apparent that many hawks in the Fed will advocate pulling forward the rate hike where a benign CPI headline reading, up only 0.1% for April, covers up a lot of the pressure in the various component. When food and energy prices are excluded from the CPI, core prices rose 0.3%, which doesn't seem like much except it's outside the high-end of economist forecasts for 0.2%. The year-on-year rate for the core is at +1.8% which, after dropping to 1.6% earlier in the year, is now closing fast on the Fed's general inflation target of 2.0%. Readings are showing pressure outside of the realm of energy including medical costs and education costs which are up 0.7% and 0.5%, respectively. Shelter costs, which reflect higher rent prices, came in at +0.3% for the third time in the last four months, which is the strongest rise in rents since late 2006 and early 2007. Gains were also present in the prices of furniture (+1.3%) and used cars (+0.6%). Oil prices have been on the rise, but not energy costs, at least in the April report where prices fell by a heavy 1.3% while gasoline fell 1.7% in the month. Ultimately, these emerging price pressures through the bulk of the consumer economy are now, more than ever, raising the risk that inflation might be brewing after all. We shall see in the not so distant future what Yellen and the Fed decides.

    May 22 1:23 PM | Link | Comment!
  • Dressed Up And Nowhere To Go - By Jennifer Coombs

    What seemed like the start to a difficult session quickly reversed after the market digested a mountain of economic data. The Federal Reserve's comments did little to move the market today as there were plenty more focal points. In particular, weekly initial jobless claims remained extremely low and are signaling a significant lack of layoffs in the labor market. Initial claimed edged lower in the week ended May 16th, but not by much. The focal point was on the 4-week average for initial jobless claims, which is currently at its lowest level since 2000.

    Outside of the jobless claims there were plenty of market movers, although many continue to provide mixed messages about the state of the economy. First of all, it's clear that April was not the month everyone had hoped for, especially since it should've been easy to bounce off the weak data released for March. This resulted in the Chicago Fed National Activity Index (CFNAI) dropping again in the negative column for a weak -0.15 reading in April, indicating subpar growth across the US. This was well below consensus' expectation for a +0.10 reading and is still negative despite the easy comparison with March to a revised -0.36. Production was the weakest component in April, but this was expected given all of the weak region Fed surveys for the month. Ultimately, the CFNAI 3-month average points to a slowdown in the broader economy, as the reading is now at a deeply negative reading of -0.23 and not much better than March's -0.27 reading.

    Next, activity in the Mid-Atlantic manufacturing sector is apparently slow, but stabilizing. The Philadelphia Fed's general conditions index came in at a reading of 6.7 for May which was down slightly from 7.5 in April, but far below consensus at 8.0. The best news in this report is a slight uptick in new orders to 4.0 from 0.7 in April. Employment is also in the plus column again at 6.7. However, manufacturers in the Philly region are continuing to report price contractions, especially in costs, which is a surprise since oil prices are slightly higher from the early-year lows. The reading for inflation, if repeated across other manufacturing reports, will keep the advantage with the Federal Reserve doves. One big positive in the report is a healthy reading of 33.9 for the 6-month outlook, down only slightly from April, but nicely higher than March. Clearly, the manufacturing sector has yet to find its footing this year, but this report out of the Philly Fed points to stability that in turn hints to a rebound for industrials in the months ahead.

    In addition, existing home sales are not living up the springtime expectations that were clearly met by the reading on housing starts from Tuesday. Existing home sales were down 3.3% in April to a seasonally adjusted annual rate (SAAR) of 5.04 million units, which is just below the low-end of the consensus range. Three of the four major geographic regions showed contraction in April, with the sharpest decline in the South (the largest region) at -6.8%. However, on a year-over-year basis, total sales of existing homes are still up by a respectable 6.1%. Another positive component of the report is the rise in supply with 2.21 million existing homes on the market compared to 2.01 million in March. This increase, together with a drop in sales, increases the supply relative to sales for 5.3 months up from 4.6 months. Additionally, the median price of an existing home increased 4.1% to $219,400 which is up 8.9% over last year. While the components of the report seem strong, overall we believe it to be a disappointment. The report fails to point directly to any momentum in the housing sector, but there is an early indication that buyers may be switching their focus from existing homes to new homes, as the housing starts and permits report noted earlier this week. Nevertheless, housing data on a month-to-month basis is always volatile, but it's clearly too early to determine what the spring housing season will be like.

    Last but not least, the historic surge in building permits gave a sizable boost to the Conference Board's Index of Leading Economic Indicators (NYSEMKT:LEI). The LEI jumped 0.7% in April and well above the prior revised reading of 0.4% and consensus' expectation for a 0.3% gain. Other positive data from the month contributed to be the yield spread (reflective of near-zero interest rates). Smaller positive contributions come from unemployment claims, the credit index, and consumer expectations (though readings on this latter component have been sinking noticeably so far in May). One remaining negative is the new orders component of the Institute for Supply Management (ISM) manufacturing report, which is reminder that weakness continues to be concentrated in this sector. Overall, the LEI may be over-signaling economic strength, especially given just one particularly strong reading in the housing sector.

    May 21 2:40 PM | Link | Comment!
  • All The News Moving The Needle - By Jennifer Coombs

    In advance of the Federal Reserve's comments at 2:00PM, the major equity indices have been see-sawing back and forth across the breakeven line. The initial drop came after the Department of Justice gave a ruling on several large banks which are now set to pay billions of dollars in collective penalties for manipulating foreign-exchange rates. Among these institutions are Citigroup (NYSE:C), JPMorgan Chase (NYSE:JPM), Barclays (NYSE:BCS) and the Royal Bank of Scotland (NYSE:RBS). However, the markets were lifted once again after the Energy Information Administration (NYSEMKT:EIA) provided its weekly reading on petroleum inventories. Apparently, the worst of the oil glut may be behind us based on the third consecutive week of declining inventories. Crude oil inventories declined by 2.7 million barrels for the week ended May 15th to a total of 482.2 million. Although still operating at a very active 92.4% of capacity, refineries actually cut back output for the week.

    Domestic data was light this morning, but the weekly reading on home mortgages gave a message which conflicts with yesterday's strong housing data. The Mortgage Bankers Association (MBA) showed that all applications for US home mortgages fell in the week of May 15th as mortgage rates rose to the highest level since December 2014. The MBA seasonally adjusted index of mortgage applications activity fell 1.5% in the week, while refinancing applications rose 0.3% and new home loan requests declined 3.7% to the lowest level since April. Ultimately, 52% of all applications were in the form of refinancing, which rose from 51% of all applications in the prior week. The fixed 30-year mortgage rates averaged 4.04% for the week, up a sizable 4 basis points from 4.00% the previous week. Tomorrow, we will receive the next housing reading on existing home sales, which have been notable strong as of late.

    May 20 4:45 PM | Link | Comment!
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