The market may have made progress last week, but in so doing
pushed itself back into an overbought condition. Perhaps
even more troubling is how all the indices are at or near key
technical ceilings, right as the overbought situation
developed. Before anyone takes on anything new, a closer
look at the potential risks are merited.
We'll take such a look below, but first, let's examine last
week's major economic reports.
Though last week's economic data dance card was relatively
full, as we noted a week ago, not a great deal of the information
in the lineup was terribly important. The only items of any
real interest were Monday's capacity utilization and industrial
production figures, Tuesday's housing starts and building
permits, and Tuesday's consumer inflation rate. So, let's
limit our focus to those data nuggets to that data.
You might recall that April's industrial activity data showed
a mild slump.... not a dramatic one, but a mild one. Though
both data sets were still in longer-term uptrends, all big trends
start as small ones, and there was a chance April's stumble was
the beginning of something more significant. Well, good
news - it wasn't. In May, Industrial Production was up
0.6%, and Capacity Utilization ticked higher, from 78.9% to
79.1%. One month doesn't make a trend, but the long-term
uptrend was, and still is, pointed in an upward direction.
This is a good sign for the long-term market, though it won't
stave off short-term pullback.
Industrial Productivity Index and Capacity Utilization
Source: Federal Reserve
As for housing starts and building permits, both fell.
Starts fell from an annual pace of 1.071 million to 1.001
million, while new permits fell from 1.059 million 991K.
Were it the first time we've seen trouble from these numbers, it
might be dismissible. This isn't the first time we've seen
trouble here, however. Housing starts and building permits
have been slowing - though still growing - since early 2013.
Real Estate Construction Trends Chart
Source: Census Bureau
Finally, while inflation rates started to push higher in April
to reach 1.96%, there was some holdout of hope that it might have
just been a blip. It wasn't. For May, consumer
inflation hit 2.13%... the highest reading since October of
2012. While still not at stifling levels, one has to wonder
if this is the beginning of "the big one" that was spurred by
years and years of stimulus that should have sparked inflation
but never did. We'll have to wait and see, but this is a
Inflation History Chart
Source: Department of Labor
Everything else is on the table below:
The coming week is going to round out May's real estate
data. We'll hear existing home sales on Monday, and new
home prices on Tuesday (from two sources), along with new home
sales on Tuesday. The expected numbers are mixed, though
nobody seems to expect dramatic changes either way. As the
chart below shows, sales have been fading for a while, though the
home price picture remains mixed.
Real Estate Sales and Price Trends Chart
Source: Standard & Poors, Census Bureau, and
National Assn. of Realtors
It's also going to be a big week on the sentiment front.
We'll get the Conference Board's consumer confidence figure for
June on Tuesday, and we'll get the final score for the Michigan
Sentiment Index for June on Friday. The pros say the
Conference Board's score should edge a little higher, from 83 to
84. Meanwhile, forecasters are expecting the Michigan Sentiment
Index to move from a final reading of 81.2 in May to a final
score of 82.5 for June. Both data sets were already in
uptrends, and those uptrends should be extended this coming
Consumer Sentiment Trends Chart
Source: Conference Board and Reuters
Finally, we're also going to hear the final read on Q1's GDP
change. It's likely to be even worse than first expected.
The prior guess was for a 1.0% dip, but now the pros expect Q1s
GDP to have declined 1.8%.
Continue reading page 2 of this article
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