| Last week, the existing home sales and new home sales figures were released. Both came out weaker than expected. The existing home sales were 4.97 million units sold versus 5.00 million units expected. The new home sales were .728 million units sold versus .750 million units expected. To further add salt to the wound, the previous month's figures were revised lower for both the new home sales and existing home sales. It is also no secret that the market is expecting the highest numbers of resets to hit the market in the first half of 2008. This is putting continued pressure on the market. Many consumers are looking for a good deal, and may expect to see further housing price pressure in 2008 -- causing potential buyers to look longer. Another factor that could affect the market is the government's attempt to try to freeze sub-prime rates. The market will be watching any sort of bailout attempts closely. As a result of the weaker housing numbers, it was no surprise to see durable goods orders lower as well. Durable goods orders came out down .4% versus an expected unchanged report. We are going to be keeping an eye on the trend of non-farm payrolls to further measure the health of the economy. As a refresher, by first glance, last month's unemployment report came out much better than expected -- with an increase of 166,000 non-farm payrolls. According to Gartman, the report was actually much weaker than expected when further analyzing the details of the report. The increase is part of the "establishment" survey. The "household" survey showed a decline of 250,000 jobs. Gartman believes that the household survey has historically been a much better indicator of the jobs environment. Secondly, with such a large increase in non-farm payrolls, the household number might explain why the unemployment rate remained unchanged last month. The actual unemployment data will be released by the time this article is published. For now, reiterate that Friday's monthly unemployment report is expected to show non-farm payrolls increase to 70,000 jobs versus an increase of 166,000 last month --which is consistent with a declining jobs trend and weaker. If the trend is declining now, the market will likely be more concerned with further weakness after the holiday season, due to a decline in some seasonal jobs and the unwillingness for employers to cut jobs just before the holidays. The stock market continues to be extremely volatile as a result of the financial tug of war. The hint of any sort of rate cut continues to be near-term supportive to stocks, because the market views ease of lending practices to be bullish for growth. I have also heard several comments lately that foreign investors view the stock market as a long-term buying opportunity, primarily due to the weaker U.S. dollar allowing foreign investors the luxury of increased purchasing power. In my opinion, the rate cuts might provide temporary relief to the economy -- and most notably the stock market. However, it is questionable as to how it will affect the market longer-term trend. Fed rate cuts are not indicative of a healthy economy. We are also uncertain if further credit crunch surprises exist. |
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