The optimistic start to the session didn’t last long, and that’s not a total surprise.  Earnings were mixed, and technology was lower out the gate on the coattails of Texas Instruments’ (TXN) disappointment.

What wasn’t expected is the news of suspicious devices, potentially explosive devices, being sent to the residence of former President Bill Clinton (addressed to Hillary Clinton), to the office of former President Barack Obama (today), and the New York headquarters of CNN.

New Home Sales

On the economic front, new home sales came in well below expectations. 

Monthly rate of sales was -5.5% versus consensus of -0.6%. 

For me, the biggest red flag was the months’ supply of 7.1%, which is the highest since March 2011.  The median selling price of $320,000 was slightly higher month over month.  A year ago, the median price was $331,500 and $343,300 in December 2017. The chart is ominous as well, breaking below the trend line going back to the rebound that began in 2011.

The Fed

It didn’t make headlines in a day crowded with breaking news, but it seems like a lot of air came out of the early rally attempt when the Dallas Fed chairman released an essay backing up more rate hikes.  His message, amid the Trump versus the Fed controversy, is that the economy no longer needs stimulus, and now the Fed must hike rates to a so-called neutral level.

The problem is there isn’t universal agreement on where neutral is, and even Kaplan admitted difficulty in coming up with a number:

“One challenge in moving toward a neutral stance is the inherently imprecise and uncertain nature of estimating what constitutes “neutral.” This judgment is more of an art than a science and involves observing and analyzing a wide variety of factors. The uncertainty of this judgment is complicated by the fact that 2018 U.S. gross domestic product (GDP) growth has been substantially aided by sizable fiscal stimulus, whose impact is likely to fade somewhat in 2019 and further in 2020.”

Robert Kaplan

The market sell-off picked up steam on the release of this essay, but Kaplan is looking at a 3.00% rate next year, which would be less than most Wall Street estimates.

Tech Implosion

Although earnings from industrial names have dominated the news this week, it’s the carnage in technology that remains most unnerving.  The NASDAQ 100 is right at its 50-day moving average, as the SMH (semiconductors) has crashed to a 13-month low.

NDX

With that being said, the market is putting on a brave face and buyers are showing up.  Right now, it looks like investors are looking at retail as the next big bet.