Ho Ho Holding On!

Ho Ho Holding On!  Stocks extended their records yet further, trading up on good news from newly-friendly China. Boeing’s CEO took one for the team as his firing led to a rally in the stock, helping the Dow hold on to its record.

N O T E W O R T H Y

• In ‘da house.  I have written quite a bit about the housing sector and its importance in giving us clues about the health of the economy.  The primary reason for its importance is that it touches so many other sectors from banking, to commodities, to insurers, to homebuilders… the list goes on.  One analyst recently gave an example, writing that when you buy a new home you have to fill it with stuff.  Thumbs up Home Depot (HD), Renovation Hardware (RH), Pier 1 Imports (PIR), Bed Bath & Beyond (BBBY), etc.  Housing had quite a year in 2019, though as with many other indicators, it was overshadowed by the trade war and the protective Fed.  Home builders remain confident as is evidenced by recent surges in housing starts and permits to build. Yesterday, the US Census Bureau released New Home Sales which beat expectations showing +1.3% month over month growth after falling -2.7% last month. What that amounts to is a +17% increase in sales over last year.  One of the primary drivers of the sector's health is the low interest rate environment which helps homebuilders and homebuyers alike.  Lower rates were a result of recession fears and the Fed’s easy monetary policy.  Longer term yields have been ticking up slightly as recession fears have somewhat abated prompting many borrowers to jump in and lock in the low rates, which probably accounts for the recent surges.  While a strong housing market is good for the economy in the short term, surges in the sector can also lead to challenges in the mid term.  Namely: inflation, which currently appears to be in control.  Notable though, is that New Home Prices according to the Census Bureau are up by +7.2% year over year.  As with many things we need to watch this carefully as we enter 2020, because if yields continue to rise leading to higher mortgage rates, we can expect the market to cool off somewhat.  A self righting system… the way it is supposed to work… at least according to the economics books.
• Practically perfect.  I have always found it interesting that China is giving the US such rich “concessions” by agreeing to purchase massive amounts of agricultural products.  I put the word: concessions in quotes because while it may appear that the US has squeezed the purchases out of China through tariffs and masterful negotiations, the fact remains that China needs to purchase the goods anyway.  The US produces some of the highest quality and consistent farm products in the world and when China stopped purchasing from the US, favoring alternative producers, it was obvious that the move could not last. Though Chinese economic growth has slowed somewhat, it is still growing quite a bit and the standards of Chinese consumers along with it. Chinese domestic pork production has been ravaged by swine flu and Chinese meat consumption is on the rise.  Further, China is actually a net importer of Rice and Soybeans… fact.  So how do you feed a country of 1.38 billion and growing with less arable land than the US?  You import!  Yesterday’s rise in equity markets was helped along by a report that China will be removing tariffs on 850 products.  The reason that they cited was to “increase imports of products facing a relative domestic shortage”, practical indeed. While US farmers are rejoicing (rightly so), it would appear that the hard-won “concessions” will be welcomed by the Chinese as well.

THE MARKETS

Stocks traded up in yesterday’s thinly traded session on news that China is pulling tariffs on products ranging from semiconductors to frozen pork to avocados.  The S&P500 climbed by +0.09%, the Dow Jones Industrial Average rose by +0.34%, the Russell 2000 advanced by +0.13%, and the NASDAQ Composite Index traded up by +0.23%.  Bonds pulled back slightly and ten-year treasury yields climbed by +1 basis point to 1.92%.

NXT UP

- Holiday Hours!  Today, US Stock Markets will close at 1:00 PM EST and Bond Markets will close at 2:00 PM EST.  Markets will be closed tomorrow for Christmas and I will be able to sleep until at least 4:30 AM!

- Reflection.  Whether you celebrate Christmas, Hanukkah, both, or neither, the silence of the ticker tapes tomorrow will be a good time to reflect and begin to think about the year ahead.

daily chartbook 2019-12-24