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.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Stocks Reach Breaking Point on Economic Question

5-Day Chart at Yahoo Finance

A series of soft economic data points today soured the outlook for stocks and the ETFs tracking the market, especially the SPDR S&P 500 (NYSE: SPY). What started out as a capital flow issue this year may now be gaining momentum on new economic question. Thus, the SPY and its relative market peers could give way.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Avoid Passive Long Positions

The 5-day chart for the SPY, DIA and QQQ shows broad-based decline in stocks today, with the market dropping from the get-go. The catalyst was clear, as the blame went to China and a weak manufacturing data point.

ETF	Today	Year-to-Date	Trailing 12 Months
SPDR S&P 500 (SPY)	-1.1%	-1.3%	+22.0%
SPDR Dow Jones (NYSE: DIA)	-1.3%	-2.5%	+17.4%
PowerShares QQQ (Nasdaq: QQQ)	-0.9%	+0.1%	+30.2%

That international catalyst gained support when a slew of U.S. economic data points also showed new softness. The PMI Manufacturing Index, Leading Economic Indicators, Chicago Fed National Activity Index, FHFA House Price Index and the weekly consumer confidence measure from Bloomberg all showed relative weakness. Of the improved few data points, none was significantly so and none better than mediocre in absolution. So is the economic recovery failing then? That is the question investors are posing today, and it is costing the SPY and relative ETFs. So that argument I made to start the year against holding the SPY is reinforced by new factor now.

THIS WEEK’S ECONOMIC REPORT SCHEDULE
Economic Data Point	Prior	Expected	Actual
PMI Manufacturing Index	54.4	55.0	53.7
Existing Home Sales	4.82 M (R)	4.9 M	4.87 M
Leading Economic Indicators	+1.0% (R)	+0.1%	+0.1%
Chicago Fed National Activity	0.60	0.69	0.16
Weekly Jobless Claims	325K (R)	330K	326K
FHFA House Price Index	+0.5%	+0.4%	+0.1%
Bloomberg Consumer Comfort	-31		-31
Kansas City Fed Index	-3		5

The argument to start the year was focused on the broad-based rise in stocks in 2013, with very few ideas in the red for the year; namely only 38 stocks within the S&P 500 Index declined. So I proposed that as investors took their capital gains after the turn of the calendar year, in order to push forward tax payments and limit risk to perhaps richly valued ideas now, stocks should broadly decline. I said one place capital could flow into might be gold and the relative ETFs around it like the SPDR Gold Shares (NYSE: GLD). That idea looks to be reinforced today as well.

Today’s data is of course not the first siren to sound. At the start of this year, when the Labor Department reported December’s employment situation and showed that unemployment improved dramatically, people asked why. They said, hey, you know maybe there’s something to this argument about the civilian labor force decline and what they say it hides about the true state of the economy. I’ve tired of talking about it by now, as one of the first voices discussing underemployment and the masking of labor as long-term unemployed Americans ran out of their unemployment benefits and either went on welfare or stopped reporting their joblessness to the government. Suddenly, everyone had to notice that unemployment improved while nonfarm payrolls only inched higher. That was an undeniable truth that suddenly investors had to swallow.

It’s not even enough now for stocks that the Fed might be forced to keep the funds flowing. That’s because suddenly, every Fed-head and his brother is talking about potential inflation and what may need to be done to hedge it down the road.

So, dear friends, the SPY is unsafe still and I suggest avoidable. Those willing to get aggressive against equities can turn to the ProShares UltraShort S&P 500 ETF (NYSE: SDS) as an alternative. Stock selection remains the only option for longs, as passive long investment looks to face an opposing current near-term. I reiterate, avoid the SPY and its peers in the DIA and QQQ for the near-term.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.