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Afternoon Note

Turn South

By Charles Payne, CEO & Principal Analyst
4/24/2018 1:22 PM
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After a great start to the open, the major indices took a hard turn south.  After further review, investors did not think the earnings results were good enough.  Then, the 10-year U.S. Treasury hit 3%, and that sparked more selling.  Even companies that reported good results and were higher earlier, such as CAT, are now down significantly.  On the tech front, what should have been seen as a great report from Alphabet, has taken it (GOOG and GOOGL) down close to 5% and has taken FANG and technology with it. 

New home sales for March came in at a strong pace.  Month over month sales were up 4% to a seasonally adjusted rate of 694,000 beating consensus of 631,000.  February was revised higher by 49,000 to an annual rate of 667,000.  At the current pace, supply slipped to 5.2 months versus 5.4 months in February.   Sales growth was strongest in the West (+28%) and South (+0.8%), the nation’s biggest markets for new homes.

Not only was the annual sales rate higher, but the median sales price was up 4.8% year over year to $337,200.   


Demand remains strong as was attested to by comments made by PulteGroup (PHM) President and CEO, Ryan Marshall.  “Robust buyer demand in the face of mortgage and financial market volatility attests to the strong underpinnings of this housing recovery which is being bolstered by sustained economic growth, good job trends, favorable demographics and a limited supply of homes for sale.”  “Within this environment, we believe that our diversified operating platform, balanced customer base, and supportive land pipeline puts the Company in a strong competitive position to achieve its long-term financial goals.” 

Case-Shiller released its Home Price Index for February this morning.  Home prices nationally were up 6.3% compared to a year ago.  This was a larger jump than January’s 6.1% increase.  The 10-City Composite annual increase came in at 6.5%, up from 6.0% in the previous month. The 20-City Composite posted a 6.8% year-over-year gain, up from 6.4% in the previous month.  

Not accounting for inflation home prices are 6.7% higher than their peak in July of 2006.  Since 2012 price increases have averaged 6% per year.   Buyers seem to be adjusting to the higher prices and may be deciding that prices are going to remain at or above current levels.  Buyers may also be getting off the fence for fear of rising mortgage rates, so they might as well buy now.

Also, on the economic front, robust growth is feeding into consumer confidence.  The Conference Board's Consumer Confidence Index increased to 128.7 in April, just shy of February’s reading of 130, which was the highest reading since 2000.  Both the Present Situation and Expectations Index rose for April.   The percent of consumers expecting their incomes to decline reached its lowest level, 6%, since 2000.  This may portend to a pickup in consumer spending. Confidence is key, when consumers are confident in their job situations they tend to spend more.   Job security may be the driver behind the new home sales previously discussed. 

Sounds great for a reason for the turn. However, the pres was speaking when this occurred. When he threatened Iran a "result the world has never seen", the dow fell.

ellen on 4/24/2018 2:10:55 PM
I am a buyer on the dip and always enjoy plain speaking from D.C.

John Cowger on 4/24/2018 3:27:29 PM
John I'm with you. The market wants to move lower for a variety of reasons but not because of the economy. We are humming nicely with amazing strength among consumers and greater business investment. I hope folks aren't shaken out. Its been a more difficult period for three months so I understand the frustration. Moreover, when the market is on the cusp of reversing higher and breaking key resistance points and fails its demoralizing. Today's inflection point is frustrating to be sure but creating amazing opportunities. CP

Charles Payne on 4/24/2018 3:36:00 PM
Hi Charles. You comment tracks not only with my gut; but also with everything I've ever experienced (and hopefully learned from) as to the market's seemingly irrational convolutions...something IMHO hugely amplified by the growth and current preponderance of algorithm trading, Mo Mo and FOMO. To wit: couldn't agree more...and thanks!

SERGEI KOWALCHIK on 4/24/2018 4:17:10 PM
All economic indicators are great. Revenues up, profits up, Unemployment at record lowers, regulations being reduced, GDP at +3%, tax cuts for business and individuals. Stock market down over 400 points. Why? Because the 10 Year Treasury Rate climbed to just under 3.00%.

Jake on 4/24/2018 4:50:50 PM

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