Friday, May 16, 2014

Do Housing Starts Hint At Economic Thaw?

Stocks were higher in early trading but have since reversed back into negative territory.  It's still early so anything could happen by the close of trading.  Also, short sellers have been profitable this week so we could see some short covering into the close as traders take profits ahead of the weekend.

This morning's housing starts data showed that housings starts rose 13.2% in April to 1.072 million units.  This was much better than expected, and hints at the notion that housing started to bounce back from the poor weather earlier in the year.

But the enthusiasm over housing starts was short-lived this morning when the Univ. of Michigan consumer sentiment survey was released.  It showed that consumer sentiment fell to 81.8 in May from 84.1 the prior month.

Asian markets were mixed overnight.  Japan was lower by -1.4% but India rallied to new highs after elections in the country concluded.  Hong Kong's GDP came in below expectations (2.5%).  European markets are mostly lower today.

The 10-year yield has found support at the low levels of 2.50%.  While some would say the bond market is forecasting weak economic activity ahead, others would point to it being more of a supply and demand issue.  That makes the prospect of QE ending this year more interesting.

Oil prices are up a little near $101.85.  And gold prices couldn't stay above the 1300 level and are trading around $1294 today.

Trading comment: The failed breakout by the S&P 500 recently caught our attention.  It was also accompanied by the Nasdaq and mid-cap indexes breaking back below their 50-day averages.  This is not bullish price action and has us proceeding more cautiously at the moment.  It would not surprise us to see a deeper correction at some point this summer than we have seen in recent months.  As such, we are maintaining higher than average cash balances and putting excess cash to work in defensive areas such as alternative strategy mutual funds.


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