by Jeff Miller, A Dash of Insight

It is a very unusual week for data, with many of the major housing reports on tap and not much else. China’s GDP will be a big story over the weekend, and important earnings news will continue. Despite this, pundits will turn their attention to housing, asking:

Can a housing rebound signal “all clear” for the U.S. economy?

Prior Theme Recap

In my last WTWA I predicted that the story would be all about earnings, with a special focus on implications for the economy and prospects for 2016. Given the light economic calendar and the importance of this earnings season, it was an easy choice. It was a winning week for stocks, based mostly on Thursday’s big gains. To get the full weekly story, let us look at Doug Short’s weekly chart. This one saves more than a thousand words! (With the ever-increasing effects from foreign markets, you should also add Doug’s weekly chart to your reading list).

While I take a weekly focus, Doug’s update provides multi-year context. See his weekly chart for more excellent charts and analysis.

We would all like to know the direction of the market in advance. Good luck with that! Second best is planning what to look for and how to react. That is the purpose of considering possible themes for the week ahead. You can make your own predictions in the comments.

This Week’s Theme

We have an unusually thin economic calendar, with many of the key housing reports in a single week. This should get some attention despite the earnings news.

Housing is important both as a reflection of consumer behavior (concurrent) and also as a driver of economic growth (leading). It is especially interesting since it is not related to the Chinese economy on first-order effects. As usual, there is a very wide range of viewpoints.

  • We are in the midst of another housing bubble
  • Prices are crazy in some markets but attractive in others
  • Artificially low interest rates are spurring some demand
  • Housing is in a long, slow recovery
  • Demographics are driving a new round of demand, construction, and economic growth

    • The week will also emphasize earnings reports. By the time you read this, I could also be completely wrong on the theme because of GDP news from China. The market may react to a “six handle” on the report (growth below 7%). Two CNBCanchors discussed this on Friday. One noted the many and varied reasons that the Chinese effect might be overstated. (See Kraneshares for an excellent report on this). The other replied, “The market doesn’t care about that.”

    China might well be the story, at least for Monday.

    As always, I have my own ideas in today’s conclusion. But first, let us do our regular update of the last week’s news and data. Readers, especially those new to this series, will benefit from reading the background information.

    Last Week’s Data

    Each week I break down events into good and bad. Often there is “ugly” and on rare occasion something really good. My working definition of “good” has two components:

  • The news is market-friendly. Our personal policy preferences are not relevant for this test. And especially – no politics.
  • It is better than expectations.

    • The Good

    There was a fair amount of good news and data.

  • Options traders lean short. Dana Lyons notes the high level of bearish put activity, despite the recent rally. This is typically a good contrarian signal.
  • The U.S. budget deficit hit the lowest point since 2007. (MarketWatch).
  • The misery index a popular measure of the economy in the Carter and Reagan eras, is at a 59-year low. Rex Nutting notes that people are still miserable, wondering if a new measure is needed.
  • Inflation remained low, falling on the headline numbers for both PPI and CPI. Low inflation permits more aggressive Fed policy aimed at employment growth.
  • Weekly jobless claims remained at record low levels – the lowest in 42 years as reported by Eddy Elfenbein.
  • Michigan sentiment showed a solid rebound to 92.1 from 87.2 last month. This is generally correlated with job growth and better spending. No one describes this better than Doug Short, who shows the data history, recessions, GDP, and important call-outs in a single chart.

  • Retail sales grew slightly. Some sources regarded the data as a miss, but others noted that the declines were mostly at gasoline stations. As usual, Steven Hansen looks at unadjusted data in various time frames, doing an excellent job of sorting through the complexity.

    • The Bad

    There was also some negative data, including some of the important earnings stories.

  • Earnings news. The story was mixed, but I am giving it a slight negative score for our purposes. The beat rate versus dramatically lowered expectations is very solid. Revenue beats are much worse, as noted by earnings expert Brian Gilmartin. Brian is still optimistic about next year, but remains cautious. The anecdotal reports from Avondale (a helpful source) also had a bearish tone.
  • Philly Fed missed expectations and turned negative. Bespoke has the overall index results as well as analysis of subsectors, including this key chart:
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