Slow Motion Train Wrecks

Investors have a light week ahead as we close trading for the first quarter of 2017. On the domestic front, we have GDP Final Release and Consumer Confidence.

GDP Final Release:  On Thursday (3/30) we get our third and final release of US GDP for the 4th quarter. The first release is the most impactful. The first and second releases both came in at 1.9%. However, if a line item were to surprise in the Preliminary or Final, the markets can react accordingly. If we get better than expected information with this reading on the consumer, we can expect to see equities go higher. If the consumer comes in weaker than expected, expect equities to fall.

The Death of Retail: Last Wednesday (3/22) Sears announced in its annual 10K report that its future viability is not a guarantee. After years of losses and declining sales, investors should not be surprised as retail shifts away from brick and mortar to online stores. Investors will monitor the developments as other retail names could drag lower if Sears’ issues aren’t resolved. If suppliers publicly come out that they are asking for better payment terms or reducing shipments, the end may be near. Commercial REIT’s will also be watching the developments closely as a vacancy for a non-payment tenant or a default (the closing of Sears stores or other retail shops) will see that sector trade lower. 

The Fed Talk Continues: This week, we have 6 FOMC members scheduled to give speeches across the country. After the first rate hike of 2017, investors will be listening to clues to see when the Fed may be tightening its $4 trillion balance sheet. The balance sheet normalization would be done independently of their forecast to increase interest rates this year. However, the balance sheet tightening would push the price of Treasuries lower as they unwind their massive position, pushing rates higher.

Consumer Confidence: On Tuesday (3/28) Consumer Confidence is released. This figure has increased significantly since Donald Trump became President. Investors will be looking to see if this figure stays elevated, even though it hasn’t translated to any outsized gains in consumer spending or business investment. Any chink in the armor and stocks could fall with a weak reading.

This Makes No Sense: The latest economic indicators from the housing sector have seen Existing Home Sales lower, Pending Home Sales lower, affordability (since rates have been spiking) lower. But last Thursday (3/23) New Home Sales spiked to 7 month highs. Quite strange. This Wednesday (3/29) Pending Homes Sales for February is announced.  The previous month’s reading was lower. However, should we see another outcome 3 Sigma from the estimates (like last week’s new home sales), investors could see significant gains in the housing sector.    

This latest blog is brought to you by the Metropolitan Transit Authority (MTA). “3^rd World Countries Infrastructure got nothin on us.” Last week the MTA celebrated their latest rate increases to help pay for their retirees 2^nd home in Florida, which recently saw their mortgages increase with the Fed rate hike, by having a NJ Transit train “bump” an Amtrak Train. This closed Penn Station for the entire day, leaving NJ Transit and Long Island Railroad commuters royally screwed for the upteenth time this year.