Economic Notes – Deccember 2, 2013

December
02

Written by: Jon McGraw

What is interesting about Black Friday is that it pushes sellers to offer the best deals to entice price-conscious shoppers.

The holiday sales phenomena made me wonder, “Are there ‘Black Friday’ sales for the capital markets?” It seems always easy in hindsight to see when and which financial asset was cheap to buy or expensive to sell. For example, if investors were brave enough to buy stocks in March 2009, they would get the fire sale price on good stocks. Great investors, such as Warren Buffett, subscribe to the following advice: “be fearful when others are greedy and greedy when others are fearful.” Buffett also treasures quality investment assets: “it’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” In essence, good price and quality are important to both shoppers and investors.

Due to Thanksgiving, most of last week’s important economic data were released in the first three days.

(-) The Pending Home Sales Index slipped 0.6% in October, missing the consensus forecast of a 1% gain. It marked the fifth consecutive monthly decline for pending home sales after contract signings but not closings. The partial government shutdown in the first 16 days of October negatively affected potential buyers and contributed to weaker activity.

(+) New residential building permits in October were up 6.2% to an annual rate of 1.03 million from the September rate of 0.97 million. The levels of building permits exceeded the consensus forecast of 0.915 million in September and 0.92 in October. The higher building permit levels were due to the multi-family category, which saw monthly gains of 19.9% and 16.9% in the past two months. Single-family authorizations in October came in with a 0.8% increase from September. With strong September and October numbers, total building permits reached a new post-recession high.

The release of housing starts data for September and October was postponed to December because of data collection delays during the government shutdown.

(+) The S&P/Case-Shiller U.S. National Home Price Index increased 3.2% sequentially in 3Q13 and was up 11.2% year-over-year. Nationally, average home prices are back to their levels recorded in the second quarter of 2004. The 20-City Composite gained 1% in September, exceeding the median forecast of 0.9%. By city, home prices appreciated the most in Atlanta and Las Vegas by 1.9% and 1.6% respectively in September. Charlotte and New York had the smallest increase in the month and were up by 0.4% and 0.5%, respectively.

(+) Initial jobless claims for the week ending Nov. 23 came in at 316k, which improved more than the consensus forecasted figure of 330k. The four-week moving average fell to 332k from 339k in the prior week. Continuing claims for the week ending Nov. 16 came in at 2,776k, which was lower than the 2,875k expected. The total number of people claiming benefits in all programs for the week ending Nov. 9 this year shows there were 3.91 million people depending on government support, which was roughly 1.2 million lower than the 5.1 million in the comparable week in 2012.

(0) New orders for manufactured durable goods in October decreased 2% to $230.3 billion. The month-over-month decline was as expected after a 4.1% increase in September. Without seasonal adjustment, the year-to-date measurement has risen 4.8% to $2.27 trillion on a year-over-year basis. It continues to point to a positive longer-term trend. Excluding the volatile transportation component, the new orders dipped slightly by one-tenth of a percent.

(-) After a sharp decline in October, the Conference Board Consumer Confidence Index fell again to 70.4 in November, missing the median forecast of 72.6. The expectations sub-index retreated 4% from 72.2 in October to 69.3 in November, contributing the most to the overall index decline. Consumers expressed greater concern about the next six-months of job and income prospects but remained neutral about future economic conditions.

(+) Following a downward trend in October, the November 2013 Index of Consumer Sentiment, surveyed by the University of Michigan, stabilized to the level of 75.1, a better reading than the market expected 73. However, consumer confidence has not recovered from the pre-government-shutdown level in September when the index stood at 77.5.

Market Notes

Despite the holiday-shortened week, the U.S. equity market held on to the gain for the year to date. The S&P 500 index traded above 1,800 at the all-time high level. Domestic small cap outperformed large cap stocks. Technology and consumer cyclical stocks led sector performance. Energy and utilities stocks lagged.

Outside the United States, European stocks beat Pacific developed country stocks. German consumer confidence rose to the highest level since August 2007. Chancellor Angela Merkel’s Christian Democratic Party reached a coalition agreement with the Social Democrats to form a government. During the week, the MSCI EM index outperformed the MSCI EAFE index by 7 bps. The MSCI EM Asia performed the best, returning 1.86% while the MSCI EM Europe had the worst performance, down 1.53%.

Treasury yields barely changed from the prior week. Bonds had a positive return during the week. Long-term government bonds and credit bonds performed the best. Foreign-developed sovereign bonds returned 17 bps measured by the Citi Non-U.S. World Government Bond index.

Foreign REITs outperformed U.S. REITs in the week. The more diversified Dow-Jones UBS Commodity index beat the energy heavy S&P GSCI Commodity index.

Have a great week!