Tuesday, July 29, 2014

Daily Bullets …..For July 29, 2014


·         Slowing home prices a good thing……S&P Case Shiller 20-city home price index increased by “only” 9.3% in May, a slowdown from prior 4-5 months and considered worrisome by some.
What’s the point? There is a lot of news in the market today about the home price index. A 9% increase y/y is considered a “concern” because it’s a “slowdown”. Put in perspective, a 9% y/y increase is about 3x the long-term average for house price increases, which have run pretty close to inflation over the long term.  It should be no surprise why the housing recovery has been uneven: this economic recovery has been slower than any recovery in post WW2 era; wage growth has been restrained; and a younger demographic (millennials) has not been enamored with or financially able to buy a home.  A slowing in house price gains should be considered a good thing because it should help to improve housing affordability. Link: http://money.msn.com/business-news/article.aspx?feed=OBR&date=20140729&id=17814629
 
·         Consumer confidence highest in seven y ears….Conference Board consumer confidence index rose again to a pretty strong 90.9 in July vs 86 in June. This is the third consecutive increase in the index.
What’s the point? Rising consumer confidence is a good leading and coincident indicator for the U.S. economy. We believe it reflects acceleration in job growth. This is further support for our belief that economic growth should accelerate and places the U.S. economy on a path for continued growth. This also has positive implications for many sectors of the economy and earnings for companies in those sectors. As corporate earnings are the primary driver of stock prices, this has further positive implications for stock prices. Despite the numerous technical indicators that are flashing warning signs, underlying economic fundamentals, at least in the U.S., continue to remain positive for stocks. One key risk would be a potential for economic growth to accelerate too fast, causing an unexpected rise in interest rates. The 10-year Treasury bill yield of 2.47% is still telling us that investors believe excessive growth and inflation are not yet a problem. Link: http://money.msn.com/business-news/article.aspx?feed=AP&date=20140729&id=17814365\

 

 

 

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