Market Drivers: Easy Money, Home Sales, Earnings

Mavericks

Mavericks (Photo credit: Extra Medium)

The markets have taken a breather from their recent rally this week, staying in a tight range and moving sideways.  Generally downbeat economic data has been offset by solid earnings reports, and the Fed’s assurance that their “easy money” policy will remain for the foreseeable future. Here are three drivers that have moved the market this week:

Pending Home Sales Fall

The National Association of Realtors Pending Home Sales Index came out on Monday showing a decline of 4.3%, far worse than the anticipated unchanged reading and a significant downtick from last month’s increase of 1.7%. The drop is largely due to a growing lack of housing supply. So while negative for transaction volume,  according to Washington Post’s Ylan Q. Mui: " The number of homes for sale being at its lowest level since before the recession is sparking competition among buyers, which has led to 10 straight months of price increases”.   He also notes, "Industry experts caution that the market's recent strength does not signal a return to the heady days of the housing boom. Nearly 11 million homeowners are still underwater, owing more than their homes are worth, and prices remain well below their peak in 2006”.

Fed Speaks

Following the Federal Reserve’s two day meeting, Fed Chairman Ben Bernanke reaffirmed their commitment to keep short-term rates near zero until unemployment drops to 6.5% from the current 7.8%. He intends to continue purchasing $85 billion a month of mortgage-backed and Treasury securities, with the latest round of bond buying reaching $1.14 trillion before he ends the program in Q1 2014. The theory is that the low, long term interest rate environment will encourage more spending, investment and hiring. Critics of this policy fear that the size of the Fed’s holdings could complicate the committee’s efforts to eventually withdraw monetary policy accommodation. In an interesting side note, Kansas City Fed President Esther George dissented Wednesday, in her first meeting as a voting member. She argued that the Fed's low-rate policies could create new imbalances in the economy or financial system. This was the first time in history that a voter dissented on his or her first vote.

Earnings

A steady stream of Q4 results have been reported this week with the data showing  that of the 232 companies in the S&P 500 that have reported earnings so far, 74.5% have beaten analysts' expectations. The week started with Caterpillar being rewarded by traders after reporting better than expected earnings, but missing on revenues. We also saw Boeing shares trade higher after beating on earnings, even though they guided full-year 2013 earnings and revenue below consensus. Online merchant Amazon.com surged over 6% after its operating income of $405 million beat analyst expectations. On the downside, Ford Motor Company beat on both lines but shares sold off sharply after the auto maker forecast their operating loss in Europe would widen to $2 billion.  ahoo shares also sold off after reporting better than expected numbers, but indicated an outlook that fell short of analysts’ consensus.

Earlier this week American surfing legend Garrett McNamara broke the world record for the largest wave ever, catching a monster swell estimated at over 100ft high!  The massive swell was formed off the coast of Nazare Portugal, and if confirmed, it will shatter the previous record (also held by McNamara) of 78 ft. back in 2011.  http://bit.ly/119GkHJ

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