SUPERBOWL: Bullish GDP vs. Bearish Housing

By Markos N. Kaminis:

Thursday’s rally was spurred by economic data, with GDP coming in better than expected for the fourth quarter. But housing data reported the same day supports a recent argument for a weakening real estate sector. So which will win over the long-term market perspective, bullish GDP or bearish housing?

THURSDAY’S ECONOMIC REPORTS
Economic Data Point	Prior	Expected	Actual
GDP Q4 2013 (Advance)	4.1%	3.0%	3.2%
Pending Home Sales (Dec.)	-0.3%	-0.5%	-8.7%
Weekly Jobless Claims	329K (R.)	327K	348K
Bloomberg Consumer Comfort	-31		-31.8

 -R symbolizes “revised”

Thursday’s economic data featured two major reports that pitted against one other to affect the market profoundly. We received the first reporting of fourth quarter GDP but its strength matched against a very weak Pending Home Sales data point.

Q4 GDP grew 3.2%, which while slower than Q3, still exceeded economists’ expectations for a pace of 3.0%. This one data point was the factor driving stocks higher Thursday, with the SPDR S&P 500 (NYSE: SPY), SPDR Dow Jones Industrials (NYSE: DIA) and PowerShares QQQ (Nasdaq: QQQ) gaining between 0.7% and 1.9%. The good news was the sort that could be capable of turning the trend against the January slide, but that does not appear to be the case. At the start of trading Friday, stocks were broadly lower, and perceived safe havens like the SPDR Gold Shares (NYSE: GLD), iShares Silver Trust (NYSE: SLV) and Annaly Capital (NYSE: NLY) are all benefiting.

Still, the good GDP dish had all the right spices, as the government noted important contributions from consumer spending, exports, commercial property investment and inventory investment. Those are solid drivers of healthy economic growth, so then maybe we’ve acted prematurely in punishing stocks this year. Well, one sector of the economy would beg to differ, real estate.

Unfortunately, GDP was not the only news of the day yesterday. Pending Home Sales were reported down sharply by 8.7% in December. A decline was expected, but not by that much. Weather did come into play though. Still, other housing data reported over recent weeks and months has continued to offer bad news as well.

Pending Home Sales measures contract signings for existing home sales. Existing Home Sales data measures the actual closing of an existing home sale. Data was reported on closings last week and it showed a relatively stagnant marketplace. Unfortunately, Pending Home Sales is forward looking and portends more trouble for existing home sales down the road. Add to that the fact that earlier this week, New Home Sales came in sharply lower for December, running at an annual pace of 414K, versus 445K in November and short of economists’ expectations for 450K, and we can see that real estate activity is slowing. Recently, Michael Douville, expert real estate columnist at our blog, issued a rather sour outlook for housing in 2014, and that seems to be receiving data confirmation now.

GDP was strong enough to carry the day and settle investor concerns for a day, with the help of a strong Facebook (NYSE: FB) EPS report. Today, though, investors are looking past it and also a slew of fresh economic data showing decent consumer spending and sentiment. They are instead continuing to take money out of stocks generally for the same reason they started to do so this year, which we predicted. I expect this is due to momentum building upon itself with the message of the January slide effectively reaching the masses of investors with plenty of recent gains to protect. Americans protecting their retirement savings in work sponsored retirement accounts are very likely to pull some capital off the table due to the message they’re receiving today about that. So, I’m sorry to say, neither GDP nor Pending Home Sales matters much for now, but a case can be built with time. Next week brings new market moving employment data, so stay tuned.

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