Headed for Home


“Where the days are short and the nights are long.” – The Ramones, California Sun

It was indeed a holiday week last week, with very low volume and no price movement to speak of. The last five days have traded almost completely level, a most unusual episode, so one would expect some movement this week, a busy one for news releases.

What that direction might be, I couldn’t say. Without a shocking story, it’s unlikely the markets will move much between now and the end of the year. Broadly speaking, equities are nearly always up in the period that runs from around Thanksgiving to around the end of the year, but the exact start and stop dates can be tricky to ascertain. Too, the first half of December usually sees some heavy weather for stocks, so it would be rash to assume everything will float steadily up the last five weeks.

That tendency must be set next to the rather unusual state of the S&P being virtually flat on the year as the calendar enters December. Traders and professional managers will be prepared to fight to keep prices in the black. Certainly some small pullback is possible, but without bigger gains to protect that might inspire protective selling, any decline would need major help from the news to become anything more than another blip in a year that has been mostly made up of blips. Perhaps the Friday jobs report will provide a surprise, but the market is prepared to interpret almost any number on an as-needed basis.

I hope you all enjoyed a happy Thanksgiving. I end this brief holiday note with the admonition that this December is set up to be all about managing stock prices and will likely mean very little otherwise; the equity markets would like nothing more to float home on their own home-grown helium. They may succeed, in the process generating the usual self-serving fluff – for example, the bar has been set very low for retail sales this holiday season, making expectations easy to beat – but that success would only mean that nothing big enough to disturb them was able to show up in the final weeks. It would mean nothing about either this year or the next.

The Economic Beat (in holiday time)

The pace of housing remained steady, with existing home sales at a 5.36 million (mm) October rate, down from 5.55mm in September, and new home sales at a 495,000 rate (seasonally adjusted), up from a downwardly revised 447K. Look for October new-home sales to be revised downward as well; actual twelve-month sales have hovered in the 490K-495K range for several months running. The Case-Shiller index showed home prices up 5.5% year-on-year, within the year’s range; federal data showed a larger gain of 6.1%.

Third-quarter GDP was revised upward from 1.5% to 2.1%, thanks to an upward revision to an inventory decline. Inventories remain heavy and sales remain weak, so the revision just postpones the eventual damage to the subsequent two quarters. Four-quarter GDP rose minimally, from 2.9% to 3.18%. Exports and imports fell in October.

Manufacturing continued in the doldrums, with surveys (Markit, Richmond Fed) showing lower readings yet durable goods showing a bit of life, with an ex-transportation monthly gain of 0.5%. Year-on-year, cap-ex new orders for business comped negative for the tenth consecutive month.

Personal income rose 0.4% in October, but spending rose only 0.1%. PCE spending dropped below the 3% mark (yr-yr) and inflation remains quite subdued, at 1.3% excluding food and energy. Consumer confidence fell sharply from 99.1 to a still-elevated 90.4. Forget about spending clues because there aren’t any, but it could be another sign of a slowing job market.

Next week is a busy one, with the highlight being the November jobs report on Friday. Other reports include manufacturing surveys from Chicago and Dallas on Monday, with the national survey Tuesday. We will also see pending home sales (Monday), construction spending and auto sales on Tuesday, productivity and the Beige Book on Wednesday, factory orders Thursday and international trade Friday.

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