Ahead for investors: The 3 E's and housing
The economy, Europe and earnings, including reports from Goldman Sachs, eBay, Google and Microsoft, will command a lot of investor attention. And 4 big reports will help clarify whether the housing market is starting to mend.
Updated: 10:25 p.m. SundayThe stock market has enjoyed a nice little to start to 2012. The coming week may tell investors if the rally has the strength to withstand the stresses of earnings and economic reports and the constant headache of Europe's debt crisis. And if big money is right about a housing rebound coming.
Expect a roller-coaster week. Thanks to the Martin Luther King holiday that will close U.S. markets, their European counterparts will get a chance Monday to react mostly alone to Friday's downgrades of the debt of nine countries, including France, Italy, Spain and Portugal.
Then the earnings kick in: Citigroup (C), Goldman Sachs (GS), Morgan Stanley (MS), Bank of America (BAC), Google (GOOG), Intel (INTC), Microsoft (MSFT) and General Electric (GE). That's for starters.
The economic reports include two on inflation, three on manufacturing and four related to the health of housing.
When the week is done, investors will know a lot: If the banking system can withstand Europe. If the market has some gains ahead of it. Whether tensions with Iran will escalate into something dangerous. Whether the housing rebound is real.
Article continues below.
The market ended Friday with its second weekly gain in a row. The Dow Jones industrials ($INDU) gained 0.5%, with the Standard & Poor's 500 Index ($INX) up 0.9%, and the Nasdaq Composite Index ($COMPX) ahead 1.4%.
The market settled into a pattern of low volume but also low volatility. That may sound boring, but that's a bit of a relief after 2011, when the Dow moved up or down 100 points on 42% of 2011's 252 trading days. If you want a really good market, slow and steady gains offer staying power.
The week ahead brings the reaction to the European downgrades and the collapse of talks over restructuring Greece's debt and some big earnings.
You can expect some volatility from the downgrades and, more probably, from the Greek crisis. What no one wants is a messy default where no one knows the facts. Especially the exposure of big investors, such as French banks, to a default.
Futures trading late Sunday -- and early Monday trading in Asia -- suggests the downgrades and Greece are going to weigh on non-U.S. markets overall Monday. Futures on U.S. stock indexes were lower, which may lead to a lower open for U.S. stocks on Tuesday.
Earnings may well become a bigger influence on markets as the week moves on. The early part of earnings season is banks and big a lot of big techs, and they move markets.
And then there's housing. It's a disaster, right? Well, maybe not. The uncertainty has to do with the big run-up in housing-related stocks since the market bottomed in early October.
The Philadelphia Housing Sector Index ($HGX), which tracks big homebuilders like PulteGroup (PHM), Ryland (RYL) and D.R. Horton (DHI), is up 11% so far in January. That's after falling 31% in the second and third quarters of 2011 and gaining 29.5% in the fourth quarter.
Shares of Home Depot (HD), Lowe's (LOW), Masco (MAS), which makes faucets and cabinets) and paint-maker Sherwin-Williams (SHW) have been rallying strongly since the summer at least. The one exception, which is worth considering: Whirlpool (WHR).
Is something really happening? Building permits, which are better to study than housing starts, look like they've bottomed. Existing-home sales look like they've bottomed. But the problem with housing is that the great unknown is whether foreclosures are close to getting cleaned out.
You see that in home prices, which are still falling because of the pressure that prices of foreclosed homes exert on many markets, such as Florida, Arizona, California and Nevada. In Ohio, single-family home prices fell 7.2% in November. Take out the distressed-property sales, and prices were up 0.3%.
The data suggest that housing activity was better in the fall than the summer on a relative basis. (Home sales typically peak in June or July.) But we're still dealing with record-low levels of activity. Existing-home sales in November were off nearly 40% from their peak in 2005. Building permits are still off nearly 70% from their bloated high in mid-2005.
If there are gains on all these reports, that's a signal something is happening. You'll see it in increased single-family permits and starts and home sales.
It could well be that multifamily permits are telling us a rebound is forming. They typically start to expand nine months to a year before single-family starts. That seems to be occurring now.
This week brings four reports that will help clarify the situation:
- The Mortgage Bankers Association's weekly survey on mortgage applications on Tuesday. This index perked up a little in the week ended Jan. 6. It's been flat or declining, a reflection of consumer confidence.
- The National Association of Home Builders' confidence index on Wednesday. This should show some increasing confidence among homebuilders.
- The Commerce Department's December report on housing starts and building permits on Thursday. Expect a small gain.
- The National Association of Realtors' December report on existing-home sales on Friday. Expect a small gain.
| Markets for the week | ||||||||||||
| 1/13/2012 | 1/6/2012 | % chg. | YTD chg. | |||||||||
| Dow Industrials | 12,422.06 | 12,359.92 | 0.50% | 1.67% | ||||||||
| S&P 500 | 1,289.09 | 1,277.81 | 0.88% | 2.50% | ||||||||
| Nasdaq | 2,710.67 | 2,674.22 | 1.36% | 4.05% | ||||||||
| Russell 2000 | 764.20 | 749.71 | 1.93% | 3.14% | ||||||||
| Crude oil | $98.70 | $101.56 | -2.82% | -0.13% | ||||||||
| (per barrel) | ||||||||||||
| U.S. Dollar Index | 81.79 | 81.60 | 0.24% | 1.58% | ||||||||
| 10-yr. Treasury | 1.85% | 1.96% | -5.51% | -0.96% | ||||||||
| Gold | $1,630.80 | 1,616.80 | 0.87% | 4.08% | ||||||||
The week ahead begins the acceleration of earnings reports for the fourth quarter.
Here's a rundown of some of the key reports:
Tuesday: Citigroup, TD Ameritrade (AMTD), Wells Fargo (WFC). The key is whether problem loan rates, particularly in home loans, is coming down. JPMorgan Chase (JPM) suggested Friday they were.
Wednesday: Goldman Sachs, Northern Trust (NTRS), State Street (STT), eBay (EBAY) and F5 Networks (FFIV). The latter is a big player in cloud computing. Goldman Sachs will probably show weak earnings because of reduced trading and investment banking revenue. And look for its exposure to Europe.
Thursday:Advanced Micro Devices (AMD), American Express (AXP), Bank of America, Southeastern banking company BB&T Corp. (BBT), Google, IBM (IBM), Intel (INTC), Morgan Stanley (MS), Southwest Airlines (LUV), Union Pacific (UNP) and Microsoft, the publisher of MSN Money. Like Goldman Sachs, Morgan Stanley has suffered from reduced trading and investment-banking business. It also has been combating worries about Europe. Bank of America has lots of problems. Watch what it says about its troubled mortgage operations.
Friday: General Electric, SunTrust Banks (STI) and oil-services giant Schlumberger (SLB).
The economy: Inflation and manufacturing
Aside from the housing reports, the week is concentrated on manufacturing and inflation.
Empire Manufacturing Index for January, due Tuesday from the Federal Reserve Bank of New York. Look for continued gains from December.
Producer Price Index for December, due Wednesday from the Labor Department. This should show few inflation pressures.
Industrial production for December, due Wednesday from the Commerce Department. Disruptions last fall caused by Thailand flooding that damaged electronics plants should be clearing up. But utilities may be weak because of abnormally warm weather in December.
Philly Fed manufacturing Index for January, due Thursday from the Federal Reserve Bank of Philadelphia. Like the Empire index, look for continued gains from December.
With some housing numbers due this week...keep in mind that there are still millions of homeowners underwater on their mortgages with no chance the market will rebound to even get them back to even. In addition, the majority of the banks and mortgage companies have slowed down the foreclosure proceedings due to not having enough help to process the paperwork and government intervention imposing a moratorium so there are millions of more homes that should and will be foreclosed on it's just a matter of when. Factor all this in and the net result is there is a bunch of exisitng homes that will become foreclosures thus keeping the market down and forcing prices lower.
I would also question the existing home sales reported by the National Association of Realtors as they have admittedly lied in the past about reporting over inflated numbers and it wasn't until CorelLogic an independent 3rd party investigated them did they admit they reported false numbers. Numbers are too often manipulated to make things appear better than they really are.
Even as things improve (which they aren't ) too many people now have the knowledge that it doesn't really matter, you can walk away from your house if it gets to expensive. That the stigma is pretty much gone for BK and to NOT believe a ****ing thing the bank has to say. Hire a real estate lawyer for a closing :) Not all that expensive. Banks are LOVING that one.
People have had the confidence blown that a house is an investment. Who is going to risk paying tons of money for a house when everyone is looking for a deal ....... Many Many people are creating a new American Dream. Being Debt free.
People have had their mobility destroyed being tied to a house they can't sell and since they didn't buy it planning to live there the next 50 years they are basically screwed. How bout all those millions and millions of foreclosed houses that are ghetto holes now in what were once nice neighborhoods...what is going to happen to those? What about the house values near those homes? Lets face it the banks aren't going to invest in them. they will just sit on them forever until some wall street **** buys them cheap and sells them as meth labs. So you have contniual decline in values there as well.
Housing is shot. Forget housing for at least the next 5 - 10 years. And that's if this country gets its **** together. Big IF.
hmmm... In many states you cannot even close on a real estate deal without being represented by counsel. The banks didn't force people to buy over priced real estate, not did they force people to default.
If they do not default, no housing crisis. Now the banks didn't care if the people they lent money to could afford the loans. They were being unloaded on Freddie and Fannie. Three government policies drove up prices and created the mess...
1. Interest Deductiblity on RE loans.
2. The first $500,000 in RE profits being tax free.
3. The government insisting the 20% rule not be inforced by lenders.
All 3 of these items brought speculators into the maket. If you can't even come up with 20% of your bet, why are you gambling? Imagine if the first 500K in stock market profits were tax free.
Plus people had been sold a bill of goods that Real Estate can only go up in value. Utter nonsense. Real Estate became way over-valued, and people that bought at the top with extreme leverage will get crushed.
I know of no one being foreclosed upon that paid cash. We have a 50% margin rule for stocks, imposed by the SEC. We needed a 25% margin rule for RE imposed by the FDIC. Our so called 'regulators' failed totally, and actually caused the problem. Even today these regulators have failed to institute this rule. Of course many banks have returned to this rule inspite of government resistence.
"Economy, Yep trillions in stimulus, interest rates near zero. On total life support and just barely ticking."
The POINT is the top 10-20% including me are scamming the bottom 50-70% by printing more and more fiat currency prompting the fools to borrow and buy more and more junk while their real assets are being devalued and junk is made in China by $250 month workers. Then the 99% protesters, actually representing the bottom 50% want to blame Wall Street and the establishment for their stupidly of spending $50-100 grand they didn't have on a worthless social science degree in English, psychology or something else that guarantees them $30k a year. That's like spending $40k on an electric car to save $3k a year on gas while piling up $60k in car loan payments. Patient's got socialism cancer and no amount of placebos will cure it.Comrade ActiveRIA...
We are now around 15.8 Trillion in debt. Given 308 million Americans this means that the average family of 4 has a 200,000 debt hanging over their heads. This 'debt' has been pile dup upon Americans by the deficit socialist spending. This years debt will be over 1.3 Trillion (I am betting closer to 1.6 Trillion).
Of course Democrats, not believing in equality when it comes to taxes, will say let someone else pay! Taxes, sir need to be paid by all, we cannot continue leaving 48% of Americans paying zero Federal Income tax. If you insist on this progressive tax nightmare, how many people will lose their jobs to pay for these taxes. As someone that hires people, I can assure you, I will layoff as many people as needed to pay these new taxes.
Comrade ActiveRIA, why don't you ever state what tax rates you want? Why not tell us what you feel is fair? I accept the fact that you feel 'fair' means UNEQUAL. Why not explain your utopian vision?
that won't do, it just won't do ...
"Then the 99% protesters ... want to blame Wall Street and the establishment for their stupidly of spending $50-100 grand they didn't have on a worthless social science degree in English, psychology or something else that guarantees them $30k a year. .... Patient's got socialism cancer and no amount of placebos will cure it."
it doesn't take sherlock holmes to spot numerous errors and inconsistencies here.
1. of course OWS blames wall street - GS et al has been ripping off America for over a century (read "Rolling Stone Goldman Sachs Matt Taibbi"), and they are the ones who are believed to have deep-sixed the euro zone years ago by taking millions to get liabilities hidden by greece and fraudulently slide them into ("qualify") the EU, next they get congress to kill the glass-steagall bank act and then create trillions in mortgage securities to rip off the US and the world. did you not watch the congressional hearings? did you not hear blankfein blasphemously say they were "doing God's work"? did you mis-post or are naive? how many more hundreds of billions will you stand idly by and allow them to siphon out of the American financial system?
2. the VAST MAJORITY of college kids go to school online, they go to juco's (jr. colleges) they go to community college, they live at home and commute, they do work-study, they get scholarships, they get aid grants. they DO NOT "stupidly" spend "$50-100 grand" on college.
http://www.collegeboard.com/student/pay/add-it-up/4494.html
3. many english and psych majors are multi-millionaires and very successful. where does this weird stereotyping come from? are you telling me that everyone who graduates with your degree is immediately employed at a high salary these days? what is wrong with being a teacher or helping the mentally ill for $30k a year? is that not honorable, necessary work? what is it that drove you to describe their hard-earned degrees as "worthless"? career regrets?
4. and pray tell what is wrong with enlightened capitalism that pays attention to society's needs as well as corporate profits? the current unfettered free-market capitalism allowed to run amok has been a certified disaster.
no, it was not "both parties" or "big government" or "w. bush" who ruined America ... it was greedy elites and their crony capitalism that perverted our politicians and bent them to their evil deeds.
whatever. i had never seen this side of your posts before and was altogether taken aback, since it means that many of us have still not accepted the core problems rotting away America.
have a good one .....
We are a representative republic with a self-interested president and congress putting their interests ahead of progress for the nation and the jobs progress would create. Our government is a mess but it is perhaps a lot better than elsewhere in the world. America has advantages which will gradually overcome the negative drag of Washington. America is the only major nation that sits of both of the world.' great oceans. This is a huge economic advantage. We still have vast basic resources. We still have a competitive, though complicated, capitalist system. Yes, it favors the wealthy, but that's life. Do away with the wealthy and who do we have to supply us with capital? And without capital, no jobs, baby. So stop gripping and start looking for ways to improve your own life.
This will still be an American centuryalong with China and India.
1. Would We The People (both the 99% & the 1%) all be better off if had there been no Partisan Politics for the last say, 30 years? No Dems, no Reps, no professional politicians, and just one and two term elected representatives from all walks of life and income brackets?
2. Would We The People (the 99% only, moot point for the 1%) all be better off had there never been a Credit Card Industry to help drive the masses into a "debt of convenience," and suck anywhere from 2% to 30% of every dollar spent using plastic out of the economy?
are you rooting for America to become a third-world country one day with a ruling one percent elite like Syria?
No Active I'm not rooting for anything just analyzing what the American voters are doing to themselves with a little help from the two corrupt political parties that are afraid to do what's right and world wide capitalists that are rightly serving their shareholders. The saga we're watching in the EU has to be a warning that the US can not police the world, provide free medical and other services to immigrants and other needy groups and provide the benefits paid for by it's retiring citizenry. Where is the EU going to get the $39 trillion in pension obligations it has promised it's citizens? We've had this discussion many times.It seems that roller coaster weeks are those weeks that Ben Bernanke has a case of the hiccoughs.
Three "E"s, sounds like a failing grade to me.
Economy, Yep trillions in stimulus, interest rates near zero. On total life support and just barely ticking.
Europe, No real workable solutions, and their downturn began last quarter.
Earnings, We'll see how that goes. Still this isn't baseball, so one for three isn't too good.
Mirage and all others,not just you......
Every President and or Adminstration has funded "green" companies or methods to wean us off of oil for 30 years.......Some(maybe too many) are failures, but we still do and are.
Doesn't Congress cut those or approve the CHECKS?
And is it not the Senate and Congress, that SUPPORT a lot of this PORK ??
NAME me a President that hasn't supported those energy policies Since Ford or Carter
Including those two also.
Yup Yamantic.....That was pretty much what the Founders, intended it too be.
A Republic, represented by the Republic's people, elected or appointed.
For the betterment of the Republic and not to usurp certain States Rights.
"We the people....."....for the people,by the people.
The Republic grew and PROGRESS changed many things.....
Including your Credit system, which the masses participated in, at their free will and peril.
My other was involved in that business(owned)...
Office suppliers and Printing companies have dropped like flies in winter over the last 10 years.
She got out...getting was good about 12+ years ago...Retired.
Office Max/Staples put the hurt on all.
With computers and printers,everyone became a publisher...At 4-times the cost. Not too bright. 
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