The past 24 hours have seen two big swings in the market. First, in the afternoon yesterday, Senator Harry Reid came out and said no real progress has been made with respect to the Fiscal Cliff, which caused the market to drop 89 points yesterday. Today, we started off under some more pressure as Erskine Bowles, the co-chairman of a high-profile fiscal commission, expressed pessimism about a deal to avoid the fiscal cliff. She isn't even in the negotiations, so why her comments would the send the market lower is beyond me.
However, that was quickly followed by Speaker of the House John Boehner saying he was optimistic of a deal being done. This entire situation is developing into a game of he said she said. I don't want to know which lawmakers are putting their heels in the sand; I want the negotiations to go on behind closed doors. That is the only way a deal will actually get accomplished.
The President lightened the mood further when he reiterated that neither party wants tax rates to increase for the middle class.
At 2 p.m., the Federal Reserve's "beige book" report of economic conditions will be released. Economists will be looking for comments about the effect of Hurricane Sandy, along with impacts of the fiscal cliff. New homes sales data was less than stellar, but more about that later in the report.
New Home Sales
October new home sales came in at 368k annually, which was down slightly from September's 369k. Here's where it gets interesting; the September data was actually revised all the way down from 389k which at the time had been seen as a strong gain and a two and a half year high. With these changes though, we now see a new home demand trend that has remained essentially flat since May. The consensus estimate was calling for 388k, which would have been flat from the unrevised September number.
There were positives to be seen though, including 60k home sales in the Midwest, the highest since September 2009, and 111k in the West, the highest since July 2008. Those gains were offset by declines in the Northeast and South.
In the end this dented the markets this morning which is understandable as it's more confirmation that the housing rebound story has hit somewhat of a speed bump. Yet, one thing I found interesting was that out of the 29k non-annualized sales during the month (the headline number is an annual rate), 9k of those homes hadn't been started yet. That goes to show that homebuilders are still catching up to demand, so even though home sales were flat it remains bullish for construction.