More mixed data this morning on the economic front. The headline durable goods figure looks very strong at 4.8% vs a consensus 2.5% jump, but a look under the hood tells a different story. Orders rose just 0.8% after backing out the 18.4% surge in transports. This data has a tendency to be highly volatile, however, and has little impact on market direction.
The housing market got another shot in the arm this morning as new homes sales came in better than expected (I know, you’re shocked as am I – who are the “analysts” coming up with these horrible estimates?). New sales jumped to 433K vs expectations of 390K. Perhaps most important is the sharp decline in inventory. New homes on the market dropped to a 7.5 month inventory level – the lowest level since 1993. As much as I’d love to become a cheerleader for the housing market and an economic recovery, I am skeptical about how much of this gain is seasonal and related to the first time buyers stimulus. As the stimulus wears off and we move into the latter half of the year housing should experience a further bout of weakness. The housing recovery is still very much up in the air.
Perhaps the most important trend this week is the development of a “sell the news” attitude. Despite two relatively strong economic reports, the market is down slightly and sold into the housing spike at 10AM. If you’re a long investor you have to begin wondering where the buyers are going to come from in the next few months. What is the next catalyst that will drive stocks higher?
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.
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