Positive Data Soothes Equity Markets, Summer of Volatility
- New Home Sales for May increased by 2.1 percent to a 476,000 unit annual rate.
- New Orders for Durable Goods were up 3.6 percent in May, led by commercial aircraft.
- The Conference Board’s Consumer Confidence Index climbed to 81.4 in June.
- The Case-Shiller 20-City Composite House Price Index for April is up 12.1 percent from a year ago.
U.S. equity markets, looking for something good to react to, found it today in both consumer and industrial economic data. Today’s positive data points should not be misinterpreted as a meaningful change in the trajectory of the U.S. economy, but rather serve as a reminder that financial markets are likely to be somewhat volatile this summer as they react and overreact to both good and bad economic data and to both real and imagined changes in fiscal and monetary policy. New home sales for May increased by 2.1 percent to hit a 476,000 unit annual rate. New home sales are still well below what would be considered a normal rate in the vicinity of 700,000 units per year, so there is ample upside potential for an extended increasing trend in new home sales. The supply of new homes remains tight, ticking up to 4.1 months’ worth in May. The Midwest is showing the most improvement, with sales up 77 percent over the last year. The Northeast is flat over that time period. The South is up 28 percent and the West is up 19 percent.
With home sales firming, so are prices. The Case-Shiller 20-City Composite House Price Index gained 1.7 percent for the month of April, and is up 12.1 percent over the previous 12 months. All 20 cities showed monthly and yearly gains. Dallas house prices are up 7.4 percent over a year ago. Detroit, 19.8 percent. Los Angeles 18.8 percent. Miami, 13.0 percent. Phoenix, 21.5 percent. San Diego, 14.7 percent and San Francisco is up 23.9 percent. Here, it is important to remember Stein’s Law, which says that anything that can’t go on forever won’t. Double digit gains are to be expected in the early days following a major correction, but they are not sustainable over the long run. Consumer confidence increased in June, up to 81.4 according to the Conference Board. This is the strongest number for that survey since January 2008, suggesting that gains in homeowner equity will go a long way toward revitalizing a downtrodden consumer. New orders for durable goods increased by 3.6 percent in May. Once again, this number was pulled around by volatile commercial aircraft orders, up 51 percent for the month. New orders for nondefense capital goods excluding aircraft gained a respectable 1.1 percent in May and show a solid trend for the past three months.
Market Reaction: U.S. equity markets are up. Treasury yields are up. NYMEX crude oil is up to $95.37/barrel. The dollar is down against the euro and up against the yen.