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  • MORE TRIPLE DIGIT SESSIONS By WSS Research Desk 0 comments
    Jun 27, 2013 3:27 PM



    By Carlos Guillen

    So far trading activity this week has been resilient, with the exception of Monday's session of course, so despite some rather concerning drops last week, stocks today are on their third consecutive day of upward moves with the Dow Jones Industrial Average posting triple digit gains in each session. Today's session is getting another boost from favorable economic data points, which included encouraging housing, consumer spending, and employment results. Moreover, comments from Federal Reserve Governor Jerome Powell have brought additional relief to investors.

    After last week's rather frantic reaction to the Fed's comment on the possibility of tapering, today Powell sought to bring some relief by implying that the market's reaction was overdone. Mr. Powell said the market adjustments since May have been larger than would be justified by any reasonable reassessment of the path of policy. Later in the session, William Dudley, head of the New York Federal Reserve, said the Fed's asset purchases would be more aggressive than the timeline Bernanke had outlined if U.S. economic growth and the labor market prove weaker than expected. He stressed that the timeline for slowing the pace of the Fed's bond buying would depend not on calendar dates but on the economic outlook, which remained unclear. These comments today appears to have been well received and is certainly a component in the Dow's triple digit gains.

    Also initial claims data posted earlier today was somewhat mixed but still not derailing the overall positive mood toward employment, as the result was worse than expected, but did slowly decline. According to the Department of Labor, initial claims during the week ended June 22 totaled 346,000, decreasing from the 355,000 revised figure reported for the prior week and landing above the Street's estimate of 345,000. While the level of new claims has bounced around in the last couple of months, now it appears to be right around the 350,000 level, which economists say is consistent with moderate labor market growth of about 150,000 net new jobs a month. The initial claims' four-week moving average was 345,750, decreasing from the prior week's average of 348,500. The overall tone coming from the public at large has been quite positive, with increasing numbers of people now expecting the employment conditions to improve. Even the Fed most recently had a slightly brighter view of the employment backdrop, saying that the unemployment rate could fall faster than previously expected. However, recent trends show a slowdown in job creation. Nonetheless the overall perception is encouraging.

    (click to enlarge)

    Also encouraging was that according to the Bureau of Economic Analysis, personal income during May increased month-over-month by 0.5 percent, better than the Street's consensus estimate calling for a 0.2 percent month-over-month rise. Concurrently, personal consumption expenditures (PCE) increased by 0.3 percent, while economists' average forecast called for a 0.4 percent rise. As a result of incomes increasing at a faster pace than consumption, the savings rate was able to make a second month of gains, increasing from 3.0 to 3.2 percent. The price index for PCE increased 0.1 percent in May, after remaining flat in the prior month. This minute increase will surely give the Fed more reasons to maintain its quantitative easing policy right on track and give investors further relief.

    (click to enlarge)

    In all, relieving comments from Mr. Powel and Mr. Dudley along with additional positive economic data presented today are all serving to support the gains made so far in the last three sessions of triple digit gains, helping markets recover from last week's rather disturbing down sessions.

    Pending Homes Power Higher
    David Urani

    We've already gotten blowout numbers for new home sales (5-year high), existing home sales (4-year high), the Case Shiller home price index (biggest one-month gain ever), and Lennar's (NYSE:LEN) Q2 report (EPS beat by $0.28, revenues +53% to $1.43) so today's strong result for pending home sales (contracts to buy existing homes) perhaps shouldn't be a surprise. But even so, the magnitude was still impressive and it's more evidence that the housing market is on fire.

    Total US pending home sales were up 6.7% month to month, and up 12.1% year over year. Gains were seen in all regions except for the Northeast which was flat. This headline result was the highest level of sales since December 2006. In a way it's almost worrisome how strong the reading was considering 2006 was during the housing bubble. This month the National Association of Realtors says that it's likely sales are actually being boosted (as we've heard from other sources) by the recently rising mortgage rates, which are spurring fence-sitters to hurry up and buy.

    So given the latest batch of housing data you can't deny that the housing market recovery remains well underway. Yet with housing stocks (as measured by the Dow Jones US Home Construction Index) still more than 15% off the high there continues to be a big bet on the Street that interest rates will be an anchor on the industry. So far that hasn't been the case, with a number of sources including the NAR, Toll Brothers (NYSE:TOL), and KB Home (NYSE:KBH) noting that rising mortgage rates have only spurred more buyers to hurry up and purchase.


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