The economic reports released in the Christmas week continued the recent trend of stronger data. In particular, consumers have been leading the way as shown by several reports last week. The Goldman and Redbook weekly retail reports both showed strength going into the holiday with the year over year change now in the range of 4%. The personal income and spending report later in the week confirmed what we already knew from the previous weekly reports, mainly that US consumers are opening their pocketbooks. Income was up 0.3% while spending rose 0.4%. Both metrics were down somewhat from last month but still strong. Year over year gains for both are now 3.8%.
Two reports on the housing market offered some evidence of bottoming but with interest rates rising it seems unlikely that an acceleration is in the offing anytime soon. Existing home sales were up 5.6% in November but still down almost 28% year over year. Prices were up slightly but inventory remains quite high at 9.5 months. New home sales rose 5.5% but remain at an anemic 290k annual pace. Prices were up slightly and inventory dropped some to 8.2 months. Further evidence of the influence of rates came in the mortgage application report which showed a 2.5% drop in purchase applications and a 24.6% plunge in re-fi applications. The housing market is going nowhere fast.
Durable goods orders fell in November but ex transportation were up 2.4%. Civilian aircraft orders were the culprit in the overall drop but outside of that strength was fairly widespread. Orders for business equipment rose as did capital goods orders ex transportation and defense. Overall it was a fairly positive report. The last report of the week was a further revision of third quarter GDP to +2.6%, a minor upgrade from the previously reported 2.5%. Weakness, unsurprisingly, was on the investment side of the ledger. This was old data though and really has little bearing on our outlook for the economy.
Stocks were up on the week as the year end rally rolls on. The S&P 500 was up about 1% on the week while small caps were up slightly more. Of more interest perhaps is that US stocks continue to outperform emerging markets which are beginning to show definite signs of fatigue. Commodities were also up on the week with oil closing over $90 for the first time since October of 2008 when it was headed rapidly in the opposite direction.
I continue to be very concerned about the overly bullish sentiment. The AAII poll last week clocked in with 63.3% bulls and a very sparse 16.4% bears. Those are numbers that I haven’t seen in a very long time and they make me very, very uncomfortable. I will address those concerns with next week’s more detailed yearly outlook but in the meantime suffice it to say that I have serious doubts about the foundations of that bullishness.
If you’d like to receive this free weekly commentary by email, click here.
Weekly Chart Review, click here.