THE UPWARD MARCH CONTINUES

The major stock market indexes opened higher this morning ( Dow +151 pts; SPX +.5%). Consumer discretionary is the leading sector (+1.2%) on strength in its major constituents Amazon (AMZN) & Home Depot (HD). Semiconductor stocks are also up about 1.3%. Most other sectors are participating, save utilities and real estate. Those two groups recently achieved all-time highs and so some give-back is to be expected. WTI crude oil is down a bit to trade around $58.90/barrel after yesterday’s sharp rally. OPEC decided to continue established production cuts through June. Cuts by OPEC late last year are helping to balance global demand and supply even though US producers are steadily ramping production levels. Bonds are trading lower today as yields tick higher. The 10-year Treasury yield edged back up to 2.61%. We should perhaps expect some rate volatility around the Fed announcement tomorrow.

US durable goods orders accelerated in January, proving that corporate capital spending hasn’t fallen off a cliff. New orders for manufactured equipment meant to last three or more years ticked up .4% from December levels. On a year-over-year basis, orders accelerated to 7.9% growth. About half of that growth is attributable to commercial aircraft orders. In order to better isolate corporate capital spending, economists take a subset of this data—orders excluding defense equipment & aircraft—to arrive at Core Capital Goods Orders. This measure improved to 3.2% year-over-year growth. While the report wasn’t uniformly positive, it should evoke a sigh of relief from investors. The most recent set of economic data available in the US suggests that while growth is slowing, we aren’t headed toward recession.

Economist Joe LaVorgna thinks the Federal Reserve may have to cut short-term interest rates later this year or next. He explains that tax reform back in late 2017 reduced state and local tax deductions (SALT) for wealthier people living in high-tax states like New York and California. This is now affecting real estate property values. Mr. Lavorgna wonders if perhaps this will end up curtailing economic activity to the point where the Fed will feel a need to lower mortgage rates. It’s an interesting theory, but I should point out it is not consensus among economists and Fed watchers. Despite dour headlines, the housing market isn’t crashing. Here are some stats on home prices taken from the most recent reports:

• The Case-Shiller Home Price Index is still rising at a 4.7% year-over-year rate

• The median price of US existing homes was up 2.8% in January

• The median price of US new homes fell 3.8% from year-ago levels

• The median home price in California was up 2% in January


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