In this new world where stocks never decline today’s 25 15 point loss on the Dow can only be described as a “plunge”. We’re quite certain by the time I am finished writing the market will have rectified this incredibly bearish action in the equity markets. Nonetheless, let’s take a look at what is going on in the real world.
The Euro continues to tank against most other foreign currencies as fears grow over sovereign debt problems in Europe. Fitch downgraded Portugal’s credit rating this morning and rumors are swirling that the Euro could have 10% more downside. Investors are growing increasingly uncertain of the sustainability of the Euro system in Europe. Many presume we could see defections from the system in the coming years as the strains continue. Nonetheless, stocks are shrugging off the news.
Durable goods orders continue to show some signs of strength, though the headline number was well below analysts estimates. New orders gained 0.5% and January was revised higher to a very robust 3.9% from 2.6%. The two are essentially a wash. A look under the hood shows a fairly mixed bag in the February report. Econoday has the details:
“New orders were led by machinery, up 4.7 percent, with fabricated metals and primary metals also rising-by 1.9 percent and 1.5 percent, respectively. On the downside were electrical equipment, down 3.3 percent; transportation, down 0.7 percent; and computers & electronic equipment, down 0.6 percent.
Nondefense capital goods orders excluding aircraft made a partial rebound, rising 1.1 percent after dropping 3.9 percent in January. Shipments for this category-a key ingredient in equipment investment in GDP-rose 0.8 percent in February, following a 1.9 percent dip the month before. Both shipments and orders have been volatile but remain on healthy uptrends. For both, January was notably strong.”
New home sales mirrored yesterday’s existing home sales report. New home sales came in at 308K versus expectations of 315K. Supply jumped to 9.2 months in another alarming negative for housing prices. The excess supply simply isn’t getting worked off despite sharp price reductions. This likely means we are looking at further price declines in the coming 6-12 months. According to most major financial news sources, stocks rallied 100 points on yesterday’s “better than expected” existing homes report, but today’s disappointing data is being largely overlooked as the stock plunge sits at 10 points as I type. Housing data should tick higher in the coming months as investors rush to take advantage of the soon expiring housing tax credit. This data, however, bodes very poorly for the sustainability of any housing recovery.
All in all the data was mixed with a negative tilt. Winter weather certainly impacted the data so investors are choosing to take JP Morgan’s advice and ignore any bad news in the pipeline. It’s interesting to note the multitude of global risks in the pipeline. Not surprisingly, foreign investors have substantially pared back risk, but US investors continue to pile into stocks. Are we the smart money or the dumb money? Only time will tell….
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.