4Q GDP was revised slightly higher, Chicago ISM (formerly PMI), which measures business activity, rose to highest level since April 2005 and consumer sentiment essentially held steady. But the big kicker was a plunge in existing home sales.
More than a foot of snow (and counting) covering NYC is likely contributing to the apathetic mood toward the market; DJIA has stayed within a roughly 80-point range from high to low so far.
While stocks are quiet, market observers are sifting through the data, and not terribly impressed by what they see. The GDP report suggests several reasons for caution, even as the economy grew at the strongest pace in more than six years, Barbara Kiviat writes at Time’s Curious Capitalist blog. About two-thirds of growth came from changes in inventories, not final sales.
“Demand for final products paints a much less rosy picture,” she says.
Business investments also declined by the most since 1942 and imports dropped the most since 1946.
“Smart people understand it’ll take more than one spectacular quarter to shake off that kind of malaise,” Kiviat notes. “The fourth quarter may have looked grand, but investors are telling us they don’t expect it to continue.”
Also disconcerting, existing home sales plunged 7.2% in January to a 5.05 million annual rate when economists were expecting a small gain. “It’s certainly not good news,” National Association of Realtors economist Lawrence Yun says. What’s worse is the decline comes amid all the government’s efforts to prop up the housing market, proving Uncle Sam can only do so much.
“Bottom line, lower prices, $1 trillion of MBS purchases and a home buying tax credit are not enough to offset the lack of confidence and tough labor market in generating sustainable sales growth,” says Peter Boockvar, an equity strategist with Miller Tabak.
Today’s subdued mood for stocks comes after some wild swings earlier this week. The DJIA fell 1% on Tuesday, closed up 0.9% Wednesday and dropped as much as 188 points yesterday before closing down only 53.
There seems to be growing concern about the recovery’s sustainability, with “very little positive news for investors to hang their hats on” lately, the Pragmatic Capitalist blogger says.
“For now, the macro trends of global rate increases, weak jobs, sovereign debt, regulation and the death of the reflation trade (thanks to the euro) will dominate any short-term moves.”