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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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  • At Least Consumers Are Happy - By Jennifer Coombs

    It's a weak rally as investors are still eyeing Europe for any hope a last-minute deal for Greece. The country looks set to default on its €1.5 billion ($1.67 billion) debt payment to the International Monetary Fund (NYSE:IMF) later in the day, and its international bailout (namely from Germany) is due to expire at midnight (or 6:00PM EST). Reports suggest Greece's government is considering a last-minute proposal from European Commission President Jean Claude Juncker; however Greek Prime Minister, Alexis Tsipras, said the offer was a "humiliation." Despite the nonsense, American investors remain hopeful for an eleventh-hour save from…somebody.

    Although the economic data released during today's session is fairly positive, it's making investors wary since positive news is far more likely to result in interest rates being hiked well before the end of the year. Firstly, growth in home prices decelerated sharply in April as was noted by the 0.3% gain in the Case-Shiller 20-City Index. This is 5 basis points below consensus and 2 basis points lower than the lowest forecast. However, on a year-over-year basis, home prices increased by 4.9% yet still came up 5 basis points below consensus and 1 basis point below the lowest estimate. Incidentally, for the first time since September 2014, there were declines in home prices among 8 of the 20 cities. Cleveland showed the sharpest declined at -0.5%, followed by Atlanta (-0.4%) and Chicago (-0.4%). Offsetting this were several big increases, with Minneapolis showing a 1.0% monthly gain, followed by Denver (+0.9%), Detroit (+0.9%) and Las Vegas (+0.9%). On a year-over-year basis, the top gaining cities were Denver (+10.3%), San Francisco (+10.0%) and Dallas (+8.8%) while the cities with the slowest gains in home prices were Washington DC (+1.1%), Cleveland (+1.3%) and Boston (+1.8%). Since this reading is from April, it still contains much of the pent-up weakness in home sales from the early part of the year, but as we've seen in May, virtually all housing-related data has drastically improved.

    Next, Chicago's sample of the purchasing managers index (PMI) for the Chicago Fed district remains surprisingly subdued with a June reading of 49.4 - notably lower than the 50.6 consensus estimate. June marks the fourth month of the last five months to show a contractionary reading below the 50.0-breakeven level. Additionally, the sample's employment level is the lowest since November 2009 and backlog orders also the lowest since September 2009. We note too that weakness in backlogs is a big negative for future employment growth. Production also mirrors the main index and is in contraction for the fourth time in the last five months. However, despite all this new orders are actually back above the 50-level and into expansionary territory, and those surveyed also believe that new orders will accelerate into the third quarter. More new orders just might be what the Chicago district needs to get back on track with the other Fed districts.

    Lastly, reflecting the University of Michigan's reading from June 26th, the Conference Board noted that consumer spirits and expectations are on the rise and near their strongest levels of the recovery. In the month of June, consumer confidence jumped to 101.4 from a downwardly revised 94.6 in May and was well above the 99.0 consensus estimate. The expectations component remains a big standout, jumping by 8.2 points to a reading of 94.6 and reflects significant optimism over the outlook for jobs and income. The status quo is apparently pretty awesome too, with the present situation component up 4.5 points to a reading of 111.6. This reading points to a potential gain in the month-over-month consumer spending between May and June, but more importantly the gain reflects specific strength in the consumer's assessment of the current jobs market. Only 25.7% of those surveyed now say that jobs are hard to get versus 27.2% in May. This report is quite solid through and through, including buying plans for cars and trucks, which should mean another strong month for auto sales in June. The number of potential homebuyers is also steady for the month. On numerous occasions, the Fed has cited consumer confidence readings are strong indicators for overall economic outlook, coupled with low unemployment. This report is a big check in the positive column for the hawks in the Fed and could serve as an argument for a rate hike sooner than expected.

    Jun 30 1:39 PM | Link | Comment!
  • Clock Winding Down (And So Is The Market) - By Jennifer Coombs

    Well this is quite the surprise: equity markets around the world dropped drastically thanks to economic data on two fronts. Firstly, as many expected but few wanted to believe, Greece's economy is falling apart and now the country will hold a vote to decide if it'll accept an accord with its creditors. The way things stand now, Greece will fail to make its 1.5 billion euro ($1.67 billion) payment on June 30th to the International Monetary Fund (NYSE:IMF). The government's attempt at seeking a one-month extension of the bailout program was shot down by its creditors, and it's highly doubtful that this national vote is going to make any difference. At the same time, China cut is key lending rate over the weekend by 25 basis points to 4.85%. This marks the fourth time the People's Bank of China has cut rates since November as the bank tries to pump up the spending among consumers and boost its struggling economy. It was known as early as last night that the US equity indices would all be off by over 1.0% today, as so far that scenario has held true. (We're all thinking what Angela Merkel is now: Greece is hopeless.)

    Domestic economic data should actually be spelling some optimism for the markets, but instead it has more investors worked up about an interest rate hike by September. All housing data has been quite strong in May, and the latest report on pending home sales is no different. Pending home sales jumped by a better-than-expected 0.9% in May while the Street anticipated a 0.6% gain. The total index level, at 112.6, is the best reading since the pre-bubble days in 2006. Sales in the Western US have been particularly strong as pending home sales rose by 2.2% in May and 13.0% year-over-year. Southern sales were also higher by 10.6% year-over-year, while May sales dipped slightly by 0.8%. Midwest sales declined by 0.6% in the month but rose by 7.8% year-over-year. Lastly, the heavy winter is over and sales in the Northeast have bounced back strong up 6.3% for the month and 10.6% over last year. Ultimately, this report compliments the existing sales report nicely, and housing is getting a boost from the stronger jobs market and the prospect of higher mortgage rates.

    Additionally, it looks like the super strong manufacturing report out of the Philadelphia Fed district was no outlier after all. The Dallas Fed district noted that the manufacturing sector in Texas is still weak but not nearly as weak as it has been in recent months. The production index improved for June to a reading of -6.5, but was better than the -13.5 in May. Business activity improved to -7.0 from a very deeply negative -20.8 in May. However, new orders still remain weak at -10.3 while shipments are also struggling at -8.8. Employment is nearing the positive column with a reading of -1.2 in June versus -8.2 in May. Price data is showing upward pressure for input data, while moderating downward pressure for finished goods and upward pressure for wages. The main culprit behind Texas' continued readings in the negative column is energy slowdown and weakness in exports.

    Jun 29 1:51 PM | Link | Comment!
  • Shiny Happy Consumers Everywhere - By Jennifer Coombs

    We close out the week with yet another zig-zagging session as stocks rose on the possibility of a deal between Greece and its creditors. The tech-heavy NASDAQ suffered today thanks to mixed data out of China and disappointing earnings from Micron (NASDAQ:MU). China's Shanghai Composite crashed by 7.4% overnight for the biggest drop since January 19th and the biggest point decline in more than seven years. Analysts attribute this weakness to a large batch of IPOs, tighter cash supply and general anxiety about the direction of economic policy in China. Meanwhile, the US Supreme Court gave the market another boost today as the court ruled with a 5-4 decision that same-sex couples can legally marry in all 50 United States. From an economists' stance, this news means good news among consumer spending, especially in the housing sector which has already started to show some strength.

    The economic calendar closes out the week fairly light, however there was one more report giving the market a nudge. Overall market optimism is much stronger in 2015 based on the University of Michigan's Consumer Sentiment Index, which jumped well above consensus estimates for a final June reading of 96.1. This is well above the highest economist estimate of 95.2 and much stronger than the 94.6 mid-month flash estimate. The jobs market is looking much stronger thanks to a surge in the expectations component, which came in at 97.8 for a 12-year high and an 11-point jump from the mid-month readings and a 13.6-point surge from the final reading in May. This 13.6-point spread is the largest monthly gain in expectations since way back in March 1991. Current conditions also showed a strong move to 108.9 compared to 106.8 from the mid-month reading and a 100.8 final reading in May. This component was slightly higher in January, but the 8.1-point gain from May was the strongest gain in current conditions since December 2013. Gains in this component point to stronger consumer spending and jobs data over the May-to-June period. Another surprise was that this gain in the index is not triggering any inflationary expectations which, compared to the final reading in May, are lower for both the 1-year and 5-year outlooks at 2.7% and 2.6%, respectively. Although these are higher than the Fed's 2.0% target, both readings are still very low for this report. Overall this report is fantastic, with other positive indications on the consumer sector, including jobless data and spending. According to this data, into the rest of 2015 the consumer should be earning more, spending more, and driving the economy higher.

    Jun 26 1:36 PM | Link | Comment!
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