November 22, 2019
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
Pass the stuffing! The Thanksgiving holiday and Black Friday shopping have arrived. In observance, Probity Advisors will be taking a break from the market action. Our offices will be closed on Thursday, November 28th and Friday, November 29th. Week in Review will return on December 6th with the latest jobs, manufacturing, and services numbers.
‘Tis the Season of Gratitude
We want to wish everyone a very Happy Thanksgiving. We hope that you have every opportunity to celebrate what you are thankful for and to be surrounded by family, friends, and loved ones. Research shows that the experience of gathering around the table to give thanks in celebration of the holiday can add years to our lives.
Practicing gratitude regularly has been shown to increase happiness and reduce depression. It improves physical and emotional health, enhances empathy, and reduces aggression. Research in psychology and neuroscience consistently shows increases in self esteem and satisfaction with life among individuals who express gratitude for the good things they have. When we have a positive outlook founded in appreciation for people and things that surround us, our brains become more engaged, creative, motivated, energetic, resilient, and productive. Furthermore, grateful individuals tend to take better care of themselves and their health and live longer, healthier lives.
We are thankful for all of our clients and for the confidence they place in us, and we wish everyone a very Happy Thanksgiving and a wonderful holiday season.
Our office will be closed on Thursday and Friday in observance of the holiday.