Bulls Pack it in for Thanksgiving Break

Bulls took a breather this week, checking out early in advance of the Thanksgiving holiday. With no major economic releases on tap, existing home sales, housing starts, and Eurozone manufacturing were the only items of note. Markets traded sideways for most of the week with the S&P 500 closing down a mere -0.33% at Friday’s close.

A Home in Time for the Holidays

Needing a place to hang their stockings in time for Christmas, homebuyers stepped up their purchases of previously owned homes in October. Sales rose 1.90% to a seasonally-adjusted annual rate of 5.46 million. The median sales price also moved higher, up 6.20% from year ago levels to $270,900. The strong gains pushed inventory down to 3.9 months, down from 4.1 months in September, and 4.3 months a year ago. That is significantly below the 6 to 7 months supply seen as a healthy balance between supply and demand. Overall, the strong results suggest homebuyers remain confident in the jobs market, which in conjunction with low mortgage rates, continues to bring life to the housing market.

Builders Hammer Away

U.S. homebuilding rebounded in October, with new housing starts rising 3.80% to a seasonally adjusted annual rate of 1.314 million units. The results were driven by a 2.00% rise in single-family homebuilding to a rate of 936,000 units, their highest in nine months. Gains were driven by an increase in construction activity, specifically in the West, Midwest, and the South. The report also showed the outlook for future home construction looks promising with building permits rising 5.00% to a rate of 1.461 million units. That’s their highest level in over 12 years. Just as seen in the existing home sales report, macro elements continue to spur demand for housing generally despite land and labor shortages impacting new homes specifically.

Europe Slumps Along

The Eurozone continued to feel the effects of the global economic slowdown as the IHS Purchasing Manager’s Composite Index, which includes services and manufacturing activity, fell 0.3 points to 50.3. That is a hair above 50, which typically demarcates economic expansion from recession. The decline was driven primarily by a slowdown in the services index, which fell to 51.5 in November from 52.2 in October. There were some glimmers of hope in the report, however, with manufacturing beginning to show early signs of life. In November, the IHS Purchasing Managers’ Index ticked up to 46.6 from 45.9 the previous month. The increase was driven by German factory activity, which is a powerful growth engine of the eurozone. While German factory activity still remains deeply in recession at 43.8, it did manage to jump from 42.1 in October – a sign the industrial downturn may be bottoming out.

With no major economic releases on tap this week and a Phase I U.S.-China trade deal on pause, bulls saw little this week to propel markets higher. There was some early holiday cheer in Q3 2019 earnings results from retailers Target and Walmart. Those companies serve as proxies for consumer strength, and their solid performance provided optimism that the busy holiday shopping season would be a good one. What was most notable in their earnings releases was that they made little mention of the U.S-China trade war. Instead their performance reminded investors that convenience and value are still powerful defenses in a world with online retailers. The reports reverberated positively with the all-important Black Friday now less than a week away.

The Week Ahead