Impeachment Inquiries Continue, Market Focuses on Earnings… As Democrats held hearings and heard testimonies regarding President Trump’s dealings with Ukraine, investors digested earnings from Boeing, Caterpillar, Tesla, and others.
What it means – There will be plenty of time to get worked up about impeachment, as the Democrats want to have their inquiries wrapped up by the end of the year. A vote is set for Thursday to begin a public phase of the Democrats’ impeachment effort. If things are looking bad for the pro-business, pro-market president, investors will have to determine how to hedge their positions. Until then, it’s all earnings, which are coming in just ahead of expectations, imagine that.
Corporate America appears to be headed for a 2.6% drop in earnings for the third quarter. It’s better than the negative 4.1% forecast just before the season started. Boeing is in the spotlight because the company’s 737 Max planes are still on the ground, which cut profits in half. Tesla also deserves a shout out for posting a surprise profit, which sent shares up 20% and gave the company a $51 billion valuation. Now, they’re just behind GM’s $56 billion. That’s not bad for a company that might make 360,00 cars this year, whereas GM will plunk out 10 million.
Not-so-terrible earnings are giving investors the confidence to push the markets to record highs.
Existing Home Sales Down 2.2% in September, Up 3.9% For the Year… The weak numbers follow a strong showing in August. The three-month average is up 0.6%.
What it means – The September results dampened some of the enthusiasm that followed the strong numbers in August. Real estate professionals hoped a late-summer push would kick the market into a higher gear. Those hopes have faded. Almost 4% growth over last year is okay, but not great, and not even good. With mortgage rates near all-time lows and incomes moving higher, people expected more.
Even with slower sales, prices remain high. The median sale price increased 5.9% to $272,100, and inventory dropped to 4.1 months’ worth. There just aren’t enough houses for first-time home buyers at low price points.
New Home Sales Dip 0.7% in September… The drop still left the three-month average for new home sales at a 12-year high annual rate of 698,000 units.
What it means – The 12-year high would be impressive if it didn’t come well after the top in new home sales in the mid-2000s and then cover the ugly period after the financial crisis. The average selling price fell to the lowest level since September 2017. That’s a feature, not a bug. Low prices on new homes suggest more sales at the low end of the market, which is exactly what we need. Inventory sits at just 5.5 months’ worth, which isn’t enough to spur strong sales in the months ahead.
Durable Goods Orders Down 1.1% in September… Excluding transportation, durable goods orders fell a more modest 0.3%.
What it means – With Boeing’s ongoing issues, it’s no surprise that durable goods orders fell. So, the number without transportation is a better read for the month. But that doesn’t give a lot of comfort. Core capital goods, a proxy for business spending, fell another 0.5% after falling 0.6% in August and a flat reading in July. Computers took a bath last month, which is also reflected in weaker earnings of companies like Texas Instruments. The gloomy report will give the Fed a bit more breathing room to lower rates next week.
Brexit Might Happen … The British Parliament rejected Prime Minister Boris Johnson’s Brexit deal last Saturday. But they voted during the week to accept the deal in principle as well as extend the deadline to the end of January. Parliament might amend the deal and make it unpalatable, but they might keep it. Even if, or when, Britain leaves the EU, the two sides still must negotiate trade, capital flows, and migration over the next several years. The initial vote is just the first step in a very long, complicated process.
Illinois Governor Budget Office Sees Deficits Growing to $3.2 Billion by 2025… The state’s pension contributions will increase from $8 billion to $9.65 billion.
What it means – If the state of Illinois owes you money, try to collect it as quickly as possible. The budget office forecasts that unpaid bills will explode to more than $19 billion by 2025 as the unfunded pensions eat up more of the budget. The unfunded pension liabilities for Illinois now total $133.5 billion.
Governor Pritzker is using the report to bolster his bid to scrap the flat income tax and replace it with a graduated, progressive tax.
Data supplied by Dent Research/Delray Beach Publishing
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