March Melt-Up

Bloomberg Update: Existing home sales lagged sales of new homes throughout 2016, but the resale market opens 2017 on a very strong note. Existing home sales jumped 3.3 percent in January to a 5.690 million rate that is well beyond Econoday’s 5.580 million consensus. January’s rate is the very best of the economic cycle, since the end of the prior cycle in February 2007.

Existing Home Sales

Released On 2/22/2017 10:00:00 AM For Jan, 2017
Prior Prior Revised Consensus Consensus Range Actual
Existing Home Sales – Level – SAAR 5.490 M 5.510 M 5.575 M 5.450 M to 5.630 M 5.690 M
Existing Home Sales – M/M Change -2.8 % -1.6 % 3.3 %
Existing Home Sales – Yr/Yr Change 0.7 %

Investor enthusiasm is being driven by several factors. In the broader picture, our recent re-emergent move higher is a continuation of the Trump rally. Additionally and importantly, this move higher in prices is also being supported by significantly better than expected Q4 results from the S&P 500 companies that have reported thus far. Roughly half of the S&P 500 have reported Q4 results, 75% of those results have beaten consensus expectations.

Valuations are Stretched – What Needs to Happen?

In a note dated January 6, of this year, I suggested that earnings would need to provide support for stretched valuations. That is happening. Now that we are roughly halfway through earnings season, investors are feeling more confident now that a floor, provided by better than expected earnings, is in place for higher equity prices.

This Week

Of the non-Fed economic data releases scheduled for this week, four stand out as being particularly important. On Wednesday at 10:00 AM EST we receive Existing Home Sales for January. Bloomberg Consensus is calling for 5.575M. Constrained supply, as we head into the spring market, will continue to provide support for prices while also acting as soft barrier to more robust turnover. On Thursday, at 8:30 AM EST we receive Weekly Jobless Claims for the preceding week. Bloomberg Consensus is 244k. Last week’s reading was a must stronger than expected 239k. Friday at 10:00 AM EST we receive New Home Sales (576k c.) and Consumer Sentiment (96.0 c.)

Corporate earnings to keep an eye this holiday shortened trading week include Papa John’s Intl. (PZZA), Home Depot Inc. (HD) and Wal-Mart (WMT).

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flickr photo: @thomaskawk