The Market Today

Markets Set for a Second Day of Turmoil

by Craig Dismuke, Dudley Carter


Housing Starts and Building Permits as Expected in October: Today’s sole report offered an update on housing starts and building permits activity for October. Although the 1.5% monthly increase in total housing starts was a bit softer than the 2.2% expected gain, the 1228k total annualized paced equaled economists’ estimates thanks to net positive prior revisions (August better, September worse.) However, the details showed little relief for the single family sector. The monthly improvement in total starts was driven entirely by a 10.3% snapback in multi-family from a 15.6% drop the month before which helped offset a second monthly decline in single family activity (-1.8%.) Three of four geographical regions posted fewer single family starts with the biggest (-4.0%) seen in the South, which accounts for a third of total activity and saw its slowest pace in 13 months. A step earlier in the new home process, building permits, were more evenly distributed. Total permits almost matched estimates and September’s activity saw a net 2.1% positive revision (to +1.7% MoM.) Single family starts slipped 0.6% on weakness in the West and Midwest. Multi-family activity dipped a similar 0.5%. The report provided a hard-to-find sigh of relief for housing in that it didn’t continue a run of big misses to the downside of expectations. However, considering it alongside the big drop in the more leading home builder confidence index (more below), the continued softness in the single family data signals the report may simply serve to postpone more pain.



Yesterday – Tech Weakness Weighs on Broader Risk Sentiment Again: U.S. stocks tumbled Monday as another tech sell-off pushed the Nasdaq down over 3.0%, its fifth sharpest decline of the year. Technology also fell to a last place finish within the S&P 500 and led broad-based losses that sank the overall index 1.7%. The Dow outperformed even after posting a nearly 400-point, or 1.6%, pullback. The early-morning plunge in the U.S. pushed European markets down into negative territory to close at their lows of the day. Back within the S&P, other companies closely aligned with tech left the consumer discretionary (Amazon) and communication services (Facebook, Netflix, Google, Twitter) off more than 2%. The infamous FAANG stocks all rounded into a bear market. Though it’s been tough sledding recently for tech companies, the initial spark for Monday’s melee seemed to be an overnight news alert from the WSJ that Apple had cut production orders for three phones from its new lineup. Industrials were the fourth worst performers after Vice President Pence and Chinese President Xi exchanged tough words on trade over the weekend. As stocks sank, Treasury yields erased an overnight rise but were surprisingly stable considering the degree of the equity-market moves. The 2-year yield finished down 1.1 bps at 2.79%, the lowest since September 17. Fed funds futures, which heavily impact the short-end of the curve, almost completely erased the probability of two hikes in 2019. The implied rate for the end of 2019 fell to 2.73%, the lowest since September 6. The 5-year yield closed lower by a similar amount at 2.87%, the lowest since September 12. And the 10-year yield ended the day where it started, at 3.06%, its lowest level since September 28.


Overnight – Global Sentiment Dented by Yesterday’s Disappointment in the U.S.: Treasury yields extended their recent decline overnight as global equities took a step back after U.S. stocks tanked yesterday to start a holiday-shortened week. Shares in China and Hong Kong fell more than 2% to lead wide-reaching losses in the region. The Stoxx Europe 600 dropped at the open and was down 0.8% earlier as most national exchanges weakened more than 1%. The European index, which has been beat up by concerns about the health of Italy’s economy, a potentially undesirable Brexit outcome, and a greater general uncertainty about global growth, was trading at a new low reaching back to 2016. Tech companies, which were the catalyst for the calamity for U.S. equity investors, were also leading losses for most major global indices. Early futures activity indicates the pain may continue stateside for a second day in a row. The major indices had already extended yesterday’s losses amid the global daily weakness, but reached new lows at down more than 1% after Target posted revenue and margin results that missed estimates. The disappointment, just days away from Black Friday and Cyber Monday, took shares of the company down more than 10% and could weigh on retail stocks Tuesday. Treasury yields extended their recent run lower amid the global angst, as the 2-year yield had drifted down 0.8 bps to 2.78% and the 10-year yield fell 2.4 bps to 3.04%, its fifth decline in the last six sessions.



Home Builders Finally Heard about the Softer Housing Data: It seems U.S. home builders finally caught up on their economic report reading this month. While most of the housing data has been softening since the start of the year, home builder confidence had been stubbornly stable. However, the NAHB reported yesterday that builder confidence registered its largest one-month decline in November since 2014 (second biggest monthly drop since 2001), with the 8-point drop leaving the headline index at a 27-month low (August 2016) of 60. All three underlying metrics – current sales and those expected in six months, as well as prospective-buyer traffic – dropped at least 7 points to their lowest levels since 2016. All four geographic regions saw notable declines. Mortgage rates have been on the rise for most of 2018 and the MBA’s average 30-year contract rate reached a more-than-8-year high (5.17%) last week. The NAHB’s Chief Economist said, “Rising mortgage interest rates in recent months coupled with the cumulative run-up in pricing has caused housing demand to stall, …Given that housing leads the economy, policy makers need to focus more on residential market conditions.” In comments last week, Fed Chair Powell acknowledged that housing had slowed but said its role as a cyclical driver was less than in recent history.


Fed’s Williams Sees “Somewhat” Higher Fed Funds Rate: New York Fed President Williams said the U.S. economy is “a strong economy, it’s an economy that’s creating a lot of jobs.” He added, “Unemployment is very low, the economy has got a lot of, I think good, positive signs and for us it’s just keeping a good balance.” Williams noted, “Interest rates are still very low. We’ve raised them but they’re still very low. And our goal here is to keep the economy strong, keep this expansion going as long as possible.” Williams believes the best way to do that is, “to do what we’ve been doing, as best we can, we’re going to find a – currently we say ‘gradual path’ of getting monetary policy back to more normal levels, …We’ll be likely raising interest rates somewhat but it’s really in the context of a very strong economy, …We’re not on a preset course. We’ll adjust how we do monetary policy to do our best to keep this economy going strong with low inflation.”

The information included herein has been obtained from sources deemed reliable, but it is not in any way guaranteed, and it, together with any opinions expressed, is subject to change at any time. Any and all details offered in this publication are preliminary and are therefore subject to change at any time. This has been prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual or institution. This information is, by its very nature, incomplete and specifically lacks information critical to making final investment decisions. Investors should seek financial advice as to the appropriateness of investing in any securities or investment strategies mentioned or recommended. The accuracy of the financial projections is dependent on the occurrence of future events which cannot be assured; therefore, the actual results achieved during the projection period may vary from the projections. The firm may have positions, long or short, in any or all securities mentioned. Member FINRA/SIPC.
Copyright © 2023
This is a publication of Vining-Sparks IBG, LLC
775 Ridge Lake Blvd., Memphis, TN 38120