Tech Stocks Fall as GDP Rises – Market Update

I went and saw Smash Mouth this weekend at a local city festival in the Detroit area. They sounded really good and it was a lot of fun. I still have their big “All Star” song going through my head and there are a couple of things that stand out as applying to the economy last week.

Gross domestic product (GDP), a measure of overall economic growth, gave a real “all-star” performance on Friday, growing at a rate not seen in a while. On the other hand, the band might say that the stock market, and particularly the Nasdaq, had their finger and their thumb in the shape of an L on their tickertape to end the week.

Yeah, I won’t be quitting my job to writing any financially-themed song parodies anytime soon. Let’s just jump into it.

Headline News

Existing Home Sales

Existing home sales were kind of a dud. They fell 0.6% on the month of June to come in at a seasonally-adjusted annualized rate of 5.38 million. Sales were down 2.2% on the year.

It wasn’t all terrible. There was a 4.3% rise in the number of homes available on the market to come in at 1.95 million, which pushed supply relative to the pace of sales up from 4.1 months in May to 4.3 months.

Prices also increased to a median of $276,900, up 4.5% on the month and 5.2% on the year.

Sales were only 0.4% higher than a year ago in the South. All other regions saw a downturn in sales compared to a year ago.

FHFA House Price Index

In May, house prices were up 0.2% overall and have risen 6.4% on the year, according to the Federal Housing Finance Agency.

Prices in the Mountain states are up 9.1% on the year. Prices in the Pacific are up 7.6%. Meanwhile, the Mid-Atlantic region continues to have the slowest annual growth, but its numbers are still very good at 5%.

MBA Mortgage Applications

Overall, mortgage applications were down 0.2% last week despite the average rate on a conforming 30-year fixed mortgage remaining unmoved at 4.77%.

Purchase applications were down 1% on the week. And despite modest gains in the share of overall applications that are accounted for by refinances, the 1% gain in these applications wasn’t enough to make up for it. Refinances still represent only 36.8% of overall applications at the moment.

New Home Sales

Builders won’t be pleased with the direction things were going in June. New home sales fell 5.3% to a seasonally-adjusted annualized rate of 631,000, missing consensus expectations for a rate of 668,000.

The good news is supply was up in the market. Perhaps helped by slumping sales, there were 1.7% more new homes up for sale. Supply relative to sales is up 5.7 months, indicating that supply is almost in balance between builders and buyers. Equilibrium is considered to happen when six months’ supply is available.

Sales in the Northeast were up 36.8% in June and have risen 21% on the year. However, it’s the nation’s smallest region for new home sales. Sales were down 13.4% and 7.7% in the Midwest and South, respectively. Finally, sales out West were down 5.2% and have fallen 15% annually.

Builders are discounting prices at this point, with the median home price falling 2.5% on the month and 4.2% on the year to come in at $302,100. However, sales are still up 2.4% compared to a year ago.

Durable Goods Orders

New orders of durable goods are up 1% in the month of June. This missed expectations for a 3.2% uptick. Much of the gain was in transportation, fueled by a 15.7% rise in civilian aircraft orders after consecutive down months for the category. With transportation taken out, orders were up just 0.4%.

There’s strength in the core capital goods category, which grew 0.6% on the month. Shipments were up 1% as well and it’s considered a good sign for the nonresidential investment portion of GDP. Total shipments were up 1.7%, while the number of unfilled orders were up 0.4% in a good sign for manufacturing employment.

Now come the negatives. Primary metal orders were down 0.4%. They’re directly affected by the tariffs being imposed in the ongoing trade kerfuffle. In a related category, fabrications were only up 0.1%. Total inventories were down 0.1%.

International Trade in Goods

The goods gap in the U.S. came in a bit higher than expected in June with the deficit increasing $3.5 billion to come in at $68.3 billion.

Exports were down 1.5% last month including an 8.5% drop in consumer goods exports at $16.3 billion. Vehicle exports came in at $12.7 billion, down 6.1%. Exports of capital goods also fell 1.8% to $47.3 billion. Finally, food and feeds, which have been given close attention during the trade spat, were down 0.5% to $14 billion.

Imports were up 0.6% overall. Consumer goods imports were up 3.6% to $53.3 billion. Meanwhile, vehicle imports were up 1.6% to $30.2 billion. Food and feeds imports were down 1.7% to $12.2 billion, while capital goods imports decreased 2.7% to $57.4 billion.

Jobless Claims

Initial jobless claims were up 9,000 last week to come in at 217,000. However, the four-week average fell 2,750 to come in at 218,000.

Continuing claims were similarly mixed. While claims were down 8,000 this week to come in at 1.745 million, the four-week average of claims was up 9,500 to settle at 1.746 million.

GDP

U.S. GDP came in a 4.1% in the first estimate of the second quarter. Consumer spending was up 4%, contributing 2.7% to overall GDP.

A big improvement in exports helped offset a minor increase in imports and net exports were able to contribute 1.1% overall as a result. Inventories on the other hand were down $27.9 billion and a 1% subtraction from the overall GDP calculations for the quarter. Residential investment was also down slightly for the quarter.

Turning back to positives, nonresidential fixed investment was up .98 percentage points with businesses investing in structures and intellectual property for the most part.

Prices as measured by this index were up 3% overall, shattering expectations. Even when food and energy are taken out, the number still stands at 2.7% in this preliminary reading.

Consumer Sentiment

In the final reading for July, consumer sentiment was up 0.8 points to come in at 97.9.

Expectations were up 1 point, rising to 87.3, as consumers are digesting the real implications of the trade talk. However, in what may be a worrying sign for consumer spending, the current conditions component was down 2.1 points to 114.4.

In contrast to the GDP report above, consumer expectations for inflation over the next year were down 0.1% to 2.9% and the rate over the next five years is down 0.2% to 2.4%.

Mortgage Rates

Mortgage rates moved slightly higher last week, reaching their highest level since June. With the way the market is moving, if you see a number you like, it certainly doesn’t hurt to go ahead and lock the rate.

The average rate on a 30-year fixed mortgage with 0.5 points in fees was 4.54% last week, rising two basis points from the week prior. This is up from 3.92% a year ago.

The rate on a shorter-term 15-year fixed mortgage with 0.4 points rose up a couple of basis points to 4.02%. At the same time last year, the rate was 3.2%.

Finally, the average rate on a 5-year treasury-indexed hybrid adjustable rate mortgage (ARM) was flat on the week at 3.87% with 0.4 points paid. This has risen from 3.18% last year.

Stock Market

The Nasdaq took a bit of a bath on Friday. Facebook, which had been rising quite a bit in recent weeks, reported earnings that disappointed investors. The company has had to make certain adjustments in the wake of Congressional inquiries into Russian election interference. As a result, both the company and the advertisers it relies on for revenue have been working to find their footing. Intel and Twitter didn’t have a good day either.

If you had any tech stocks in our Fantasy Stock League last week, you’re probably hoping for a bit of a bounce back. We’ll see if you get it. If you’ve been sitting on the sidelines, it’s not too late to compete for prizes.

The Dow Jones industrial average was up 1.57% on the week despite closing down 76.01 points at 25,451.06 Friday. Meanwhile, the S&P 500 finished at 2,818.82, still maintaining a 0.61% weekly rise after falling 18.62 points on the day. Finally, the Nasdaq fell 114.77 points to end the week at 7,737.42, dropping 1.06% weekly.

The Week Ahead

Monday, July 30

Pending Home Sales Index (10:00 a.m. ET) – The National Association of REALTORS^® developed the Pending Home Sales Index as a leading indicator of housing activity. Specifically, it’s a leading indicator of existing home sales, not new home sales.

Tuesday, July 31

Personal Income and Outlays (8:30 a.m. ET) – This is a measurement of how much consumers are taking in as well as their corresponding spending. This also gives insight into how much is being saved.

S&P Case-Shiller HPI (9:00 a.m. ET) – The S&P Case-Shiller home price index tracks monthly changes in the value of residential real estate in 20 metropolitan regions across the U.S.

Consumer Confidence (10:00 a.m. ET) – The Conference Board compiles a survey of consumer attitudes on the economy. The Consumer Confidence Index is based on consumer perceptions of current business and employment conditions, as well as their expectations when considering business conditions, employment and income.

Wednesday, August 1

MBA Mortgage Applications (7:00 a.m. ET) – The mortgage applications index measures applications to mortgage lenders. This is a leading indicator for single-family home sales and housing construction.

Thursday, August 2

Jobless Claims (8:30 a.m. ET) – New unemployment claims are compiled weekly to show the number of individuals filing for unemployment insurance for the first time. An increasing trend suggests a deteriorating labor market. The four-week moving average of new claims smooths out weekly volatility.

Friday, August 3

Employment Situation (8:30 a.m. ET) – The employment situation report measures unemployment in the labor force as well as the sentiments of workers about the job market.

International Trade (8:30 a.m. ET) – International trade is composed of merchandise (tangible goods) and services. It’s available by export, import and trade balance for six principal end-use commodity categories and for more than 100 principal Standard International Trade Classification system commodity groupings.

There’s quite a bit going on next week as well. We’ll have it all covered for you in Market Update.

If economic data and mortgage rates fail to get you enthused, we’ve got plenty of home, money and lifestyle content we would love to share with you if you subscribe to the Zing Blog below. To give you just a taste, check out this article from Dan Rafter on making sure you’re hitting your net worth checkpoints to meet your retirement goals. After all, everyone wants to be a financial all-star. Have a great week!

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