Investor concerns about the economy grew significantly last week, especially Monday through Wednesday. The Dow plummeted 476 points in three days with the largest drop of 292 points taking place on Wednesday.
As of late, investors have been somewhat cheering the less than stellar economic data reports. It has been seen that as long as the economy continues to show signs of mild weakness, the Fed will not move interest rates higher. This of course is seen as a good thing for corporate borrowing and profits.
What is happening now is that investors are starting to realize that even too much weak economic news can be problematic. Even though the lackluster economic reports will keep the Fed from taking action on raising rates, investors have now moved their focus on what the economic weakness being displayed really means. If the trend continues, the benefits that corporations receive from low rates will be wiped out by significant declines in sales.
The economy is not collapsing by any stretch of the imagination; however investors never want to be caught in the wrong investment position. For this reason reaction in the market can be exaggerated when a few high influence investors make moves in their portfolios. When this happens a “herding effect” can take place and everyone else follows thereby exaggerating market reaction.
Good news for housing is that on Monday the Existing Home Sales Report showed an increase of 1.2 percent for the month of February. This comes after January’s decline of 4.9 percent. What is pleasantly surprising is that the increase occurred despite the Northeast being buried in snow and bitter cold temps which kept many buyers waiting for the winter’s thaw. The South and West led the increase with increases of 1.9 percent. The Midwest was flat while the Northeast declined 6.5 percent. Overall sales are higher than the same time last year by 4.7 percent.
The Federal Housing Finance Agency reported that home price appreciation has slowed, but still remains in positive territory. Home prices increased 0.3 percent in January which follows December’s 0.7 percent rise. Home prices remain 5.1 percent ahead of last year’s numbers for January.
The final piece of the positive housing reports came with the new homes sales report released on Tuesday morning. New home sales rose sharply in February to an annual rate of 539,000 from the previous month’s upward revision at 500,000. These are the first two 500,000 plus readings since April and May of 2008.
This week’s potential market moving reports:
- Monday March 30th – Pending Home Sales Index
- Tuesday March 31st – Case-Shiller Home Price Index & Consumer Confidence
- Wednesday April 1st – MBA Applications, ADP Employment Report & ISM Manufacturing Index
- Thursday April 2nd – First Time Jobless Claims & Factory Orders
- Friday April 3rd – National Employment Situation