Weekly Economic Indicators: Merger Mania and Foreign Investment

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The schedule of economic releases for the week of February 25th is as follows:

 

  • Monday:  Chicago Fed National Activity Index, Dallas Fed Mfg Survey, and Dennis Lockhard speaks
  • Tuesday:  FHFA House Price Index, S&P Case-Shiller HPI, New Home Sales, Consumer Confidence, Richmond Fed Mfg Index, State Street Investor Confidence, and Ben Bernanke Speaks
  • Wednesday:  MBA Purchase Applications, Durable Goods Orders, Pending Home Sales Index, and Ben Bernanke speaks    
  • Thursday:  GDP, Jobless Claims, Chicago PMI, Kansas City Fed Mfg, Fed Balance Sheet, Richard Fisher, and Charles Evans speaks
  • Friday:  Motor Vehicle Sales, Personal Income and Outlays, PMI Manufacturing Index, ISM Mfg Index, and Construction Spending

I spoke with Peter Costa, Trader and President of Empire Executions, and CNBC Market Commentator, about the overall market, housing data, GDP, and weekly jobless claims.

Costa says it’s a tail of two tapes, the stock market and the main stream economy. The stock market, which is always the leader and always ahead of the economy, is up about 6% for the year, while the real economy is the laggard. He believes the market is on an upswing, at least for the short term. The recent flurry of M&A activity is pushing equities higher. Berkshire Hathaway’s acquiring of H.J. Heinz, AMR Corp and US Airways merging, Cardinal Health acquiring AssuraMed, and private equity purchasing Dell has provided the support for the market. Costa says “companies buying companies is always good for the market.” Investors are starting to refocus their attention on the US equity market, and taking a bet on who is the next potential merger target. This adds confidence and focuses on who is the next takeover target in that specific space. This has relieved some of the pressure off of the European markets. He is expecting a brief pull back, which will be good for the market, as investors take a breather, it’s all psychological. No market can keep going up forever.

Housing Data

Foreign investors have been pouring funds into our housing market and acquiring properties in the hardest hit areas. Costa says he is not concerned at all, as this has happened before when the Japanese acquired a lot of properties in the late 1980’s and 1990’s. In fact, it is encouraging that foreign buyers are stepping in and buying up foreclosed homes that the banks can’t even sell. This is providing some support for the housing market. However, it will definitely be a challenge for them to resell these properties. This week, investors will get reports from a number of housing reports, such as FHFA house price index, S&P Case-Shiller HPI, new home sales, MBA applications and pending home sales. Costa expects the housing starts data to be a little down, but continues to be mixed and uneven for the long term. He pointed out that housing stocks have done very well in the past few months.

GDP and Jobless Claims

Costa believes the GDP data will be revised with an uptick. Although, the recent rise in gasoline prices in the last few weeks will impact the numbers for the short term. He feels the jobless claims data will be coming a little below forecast, somewhere in the 320K to 340K range. Costa would like to see the claims data fall below the 300,000 mark, and that would rally the major indices higher. He predicts the Dow will go over 14,000 and remain there, while the S&P 500 would surpass 1515.

Costa’s Gripe

Costa says more traders need to get out there and sell the market and equities to the retail and individual investors to buy solid companies with good revenue stream. He wants to see the return of investors taking risk and buying companies again and stop spreading risk around.

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