By Carlos Guillen
Quite impressively, equity markets on Friday managed to make a strong comeback after losing 150 points as reflected by the Dow Jones Industrial Average, and by the end of the session the index was up just three points. Today, however, stocks were off to a rather discouraging start with the Dow dropping close to fifty points in the first four minutes of trading activity. Investors today are a bit concerned as they wait for some important data points including second quarter gross domestic product and the infamous government jobs data, as well as the Federal Reserve policy decision on Wednesday.
For certain, Wednesday's release of the Federal Reserve's policy-setting committee statement is sure to shake markets as investors will look for any bits of clues as to the longevity of the current easing program. At the moment, the word on the Street is that everything will remain as is, that is the Fed is expected to keep its highly accommodative policy in place. As always, it is very difficult to predict how investors will interpret the Fed's comments, but one thing is certain; there will be lots of volatility.
While there was very little in terms of economic data out today, we did get another glimpse into the housing sector, with pending home sales from the National Association of Realtors. The Index of pending home sales fell 0.4 percent in June from a month earlier to a reading of 110.9. While the result still represented 10.6 percent gain with respect to the year ago level, the concern is that rapidly increasing mortgage rates are taking the momentum off the housing recovery. And as we all know, this could have a negative effect on economic growth in the U.S., which has relied substantially on the housing recovery; more on this below.
In all, equity markets are recovering from the day's lows and are continuing to trend higher. As always, weeks when the Fed is scheduled to give any directives on policy always tend to shake markets in all directions, so hang tight as is it going to be a choppy week of trading.
Pending Home Sales
By David Urani
Pending home sales for June came in at an index reading of 110.9 which was down slightly, by 0.4%, from May whereas the Street was looking for a drop of a little over 1%. Overall it's not a bad result, as it's leveling off from May's three year high. Regionally, the West was up to its best level since November 2010, the Northeast was flat, and the Midwest and South were down modestly. The National Association of Realtors notes that rising prices and mortgage rates are making homes somewhat less affordable, although at this level they remain quite affordable from a historical perspective.
Indeed, some hints among homebuilder earnings releases last week showed signs of deceleration due to the same factors, namely mortgage rates. Nevertheless, we're still not seeing signs that sales are going negative, just perhaps lifting off the gas. Homebuilders seemed largely unaffected by today's data.