Market activity last week may have left many scratching their collective heads. Housing markets, indications of consumer activity, and core durable goods all advanced; yet the S&P 500 retreated 0.84%[1].
Housing
The S&P/CS Home Price Index (HPI) – 20 city advanced 5% over the last 12 months through March. While a slowing rate the continued increases are a good indication of a sustained buyer. In addition pending previously owned home sales increased 3.4% in April, which should result in another good 12 month HPI. Sales in new homes, while a smaller market, saw an increase of 6.8% in April. The size of the market, roughly one-tenth the pre-existing home markets, causes this gauge to be more volatile and less indicative of a trend[2].
Consumer Activity
Michigan consumer sentiment and Conference Board (CB) consumer confidence both rose, reaching 90.7 and 95.4 respectively[3]. Consumer activity is of the utmost importance as it represents nearly 70% of GDP for the US. Also, with a rough first quarter behind us, a strong consumer is needed to rebound the 2nd quarter to a level that indicates growth.
Core Durable Goods
This area indicator tells us how corporate America feels about the economy. It is a gauge that tells us how much companies are investing in equipment that has a useable life beyond 3 years. This indicator increased 1% in April and was increased to 1.5% for March[4]. This is a good sign for corporate outlooks, but may be a sign of diverted earnings during the 2nd quarter earnings season.
Detractors
While there was plenty of positive data last week the market still retreated. Much of which was attributable to a fed statement two week ago indicating that investors should expect rates to increase this year. This statement has many investors viewing strengths as an increased likelihood of fed action to tighten monetary policy.
Compounding the issue are fears that Greece will miss a debt payment to the International Monetary Fund (IMF) that is due on June 5. Failure to make that payment would be a stark move towards a European Union (EU) exit.
Crude inventories, which ran higher than expected contributed to the on-going glut supply on the market. The last several weeks have seen a reversal in this trend where crude inventories have been down and resulted in firming oil prices.
GDP for the 1st quarter was revised down to -0.7% from 0.2%. This is not a major change, but just increases the burden on the consumer for a bounce back in the 2nd quarter.
The positives were unable to outweigh the detractors of GDP, Crude Inventories, and Greece’s inability to ease concerns regarding its solvency.
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[1] www.jpmorganfunds.com – weekly market recap
[2] www.mfs.com – week in review
[3] www.investing.com – economic calendar
[4] www.mfs.com – week in review