The Big Buildup

The big buildup.  Stocks rose modestly yesterday on positive housing market news.  Unfortunately, not all companies have good stories to tell in the holiday season.

 

N O T E W O R T H Y

 

  • Swing the hammer.  Housing is one of those aggregates which is closely watched by economists and investors alike.  The reason is that it affects so many other industries.  First it is important to note that residential construction directly employs around 2.5% of the US labor force.  Though that doesn’t seem large, it actually is and keeping that 2.5% employed has a positive impact on the economy.  Other factors  to consider are the raw materials which go into homebuilding (think Weyerhouser), profits made through financing projects and mortgages (think Wells Fargo), and general housing related consumption (think Home Depot).  All of these areas are impacted by the health of the housing sector.  Housing has been on a bit of a silent tear recently, stuck in the shadow of so many other up and down economic numbers and, of course, the ongoing trade war.  Yesterday, the Census Bureau released its Housing Starts number which beat expectations showing a monthly growth of +3.2% down slightly from last month’s +4.5% growth.  Building Permits similarly beat expectations with a monthly growth of +1.4% compared to last month’s +5.0% growth.  That number, which was expected to have pulled back, is a good indicator that homebuilders are expecting to see continued growth.  Speaking of expectations, on Monday the National Association of Homebuilders released its Housing Market Index, which tracks homebuilder sentiment. The number came in at 76 compared to last months reading of 71.  The indicator is at its highest in 20 years.  Oh, and that Permits number I mentioned before, that too brings the number of permits to its highest level since 2007.  This can be looked at in two ways.  Housing is doing really well and that is a good sign for the economy, or (the contrarian approach) a housing bubble is emerging (notice when these numbers were this high in the past).  Let’s hope for the former.
  • Stuck on the tarmac.  This has been a rough year for Fedex.  In fact, it has been a rough two years for the company.  Being a shipping company, Fedex’s health waxes and wanes with the economy.  When the economy is strong, more goods are purchased and shipped, and vice versa.  As more and more consumers are making online purchases, demand for shipping has increased and Fedex has surely benefited from the ongoing trend.  In the wake of the last recession Fedex’s stock experienced a +460% growth to its zenith in early 2018 as it rode the economic expansion and the e-commerce wave.  There were, of course a few hitches along the way, but all in all the stock outperformed the airfreight index handily.  Up until the trade war started.  Global trade uncertainty meant less shipping which means less revenues combined with difficulties in business planning.  The stock has since suffered several earnings setbacks, which have impacted the stock’s performance.  Another factor impacting the company is competition.  I am sure you have seen more and more trucks with “Amazon” emblazoned  on their sides.  Amazon has been aggressively pulling its business away from Fedex, relying on its own logistics network and other lower cost last mile deliverers like the US Postal Service.  On Monday, Amazon dealt Fedex another blow by banning third party sellers from using the company for ground deliveries, citing poor performance.  With the escalating battle with Amazon, one of the factors of its recent success: e-commerce will be lacking going forward.  To make matters yet worse, the company announced earnings yesterday missing Wall Street estimates on both Revenue and Earnings.  With the trade war thawing a bit, perhaps some of the headwinds for the company will let up in 2020.  In their battle with Amazon… well that is a story that will continue to unfold for both companies going forward.  Stay tuned.

 

THE MARKETS

 

Stocks rose slightly yesterday on some upbeat data on housing and industrial production.  The S&P500 rose by +0.03%, the Dow Jones Industrial Average climbed by +0.11%, the Russell 2000 jumped by +0.46%, and the NASDAQ Composite Index traded up by +0.10%.  Bonds climbed a bit and 10-year yields advanced by +1 basis point to 1.88%.  Crude oil continued its rise yesterday climbing by +1.21% reaching $61 a barrel at one point during the session.

 

NXT UP

 

– Crude Oil Inventories are expected to have dropped by -2.126 million barrels compared to last weeks build up of 822k barrels.

– Fed Governor Lael Brainard and Chicago Fed President Charles Evans will speak today.

– This morning, General Mills beat earnings expectations and Micron Technology will announce after the bell.

 

daily chartbook 2019-12-18

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