The markets turned volatile again toward the end of last week. The S&P struggled Tuesday and Wednesday to hold onto Monday’s gain and then plummeted 4.3% on Thursday and finished the week trading lower, dropping 1.6% Friday afternoon. Volatility finished the week at its highest level since late 2008, the height of the recent economic crises.
The elevated level of volatility in the market is echoing the uncertainty in the future trajectory of the economy. There are also many questions surrounding the solvency of European banks which coupled with a complete lack of confidence in our own government yields a very murky global growth outlook. And we are now receiving conflicting economic data points for the US economy.
The economic data released last week added to the uncertainty in the markets. Industrial production numbers were positive early in the week, but unfortunately it is more a coincident indicator of economic activity. The most negative news this week came Thursday morning with the Philly Fed Business Outlook Survey, -30.7. This number may be an outlier, but regardless, it is at least a caution sign.
This week we will be watching the Durable Goods Orders number closely on Wednesday. It is expected to be around -.5%. The 2nd estimate of Q2GDP will be released Friday. The government is stepping aside and we need to see the private sector show some signs of life. Current data shows the top line growing by 1.3% and is expected to be revised to 1%. Prices are growing at a 2.3% clip and expected to be unchanged.
With all the uncertainty, a forgotten area seems to be the housing market. Renewed residential investment and subsequent construction spending may be poised to become an unlikely candidate for growth. Over the week I will be looking at the current state of the housing sector. Tuesday’s release of New Home Sales is expected flat at 310k. Expect this number to be largely ignored as investor focus is elsewhere these days. Look for my outlook for the housing market in next week’s newsletter. With interest rates on home mortgages at all-time lows, this sector starts to look very interesting, especially given a lack of confidence in other financial assets.
To recap, uncertainty abounds and there is a lack of confidence in policymakers to resolve it positively. As a result, investors are pouring money into cash, mainly Yen, Chinese Yuan and Swiss Francs. They are also putting money in Gold and other precious metals as well as safe haven sovereign bonds. The future is murky at best.
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