Market Drivers: Fiscal Fatigue and Housing

Markets drifted lower through the first part of the week before finding some support on Thursday. The pressure has been on fairly light volume, and many point to what they are calling “fiscal fatigue”, or being just plain tired of all the Fed headlines throughout the year! In the coming weeks battles over the US budget will likely take center stage, but here are three things that have been driving the market this week:

Housing

There was quite a bit of real estate data released this week. Many see developments in this sector as a key component as to how long the Fed will prolong their tapering programs. The July Case-Shiller 20-city Home Price Index, reported a rise of 12.4%, better than both the 12.1% increase last month and the anticipated 12.0% increase. MBA Purchase Applications also jumped, gaining  7% to reach their highest level since July. In addition, August new home sales came in at 421k, above estimates looking for a rate of 415k and well above July’s 390k. Lastly, pending home sales for August dipped 1.6%, better than the forecasted 2.3% drop and following last month’s decrease of 1.3%. Tight inventory and a desire to lock in mortgages before the Fed begins cutting their stimulus programs is likely driving prices higher, and putting pressure on the number of transactions that are being consummated.

Government Shutdown?

There has been plenty of political posturing going on down in Washington as the government closes in on a few key deadlines. The first is September 30th, which is the date that virtually all funding for federal government operations is slated to run out if a funding bill is not agreed on.  Unfortunately, right now the House and Senate cannot agree on a bill and are sharply divided on the Obamacare issue. Second is the “fiscal cliff” which is expected to arrive in mid-October. You could think of it as the time that the United States “maxes out” our credit card, without options for an extension of credit. Breaching this limit could have some serious implications for the market, including a spike in Treasury bond rates which would carry over into mortgage and credit card rates – threatening an already fragile economy. While both parties are trying to avoid this scenario, they are still quite a bit away from reaching a compromise. In the coming weeks investors will be watching developments on these fronts very closely.

Jobless Claims

It appears as if the jobs market is starting to show some real signs of improvement, bolstering the case for the Federal Reserve to wind down their economic stimulus program. Thursday morning’s data showed that initial claims for state unemployment benefits dropped 5k last week to a seasonally adjusted 305k, a level not seen since 2007. This is lower than the 325k that had been expected, and below the revised prior week count of 310k. Continuing claims ticked slightly higher to 2.823 million from 2.788 million. While up this week, they are still trending lower with the four week average down 42k to 2.843 million, a new recovery low. Fewer dismissals is a good sign that employers are optimistic about the future and evidence that companies have picked up the pace of hiring. Next week we will get the monthly employment report, which could provide more evidence on whether the labor market is making significant progress.

Weekly Bonus: Extra Terrestrial Vehicle

If simply owning a Farrari or Bentley is not enough for you, why not aim for something a little more unique? How about a custom ride which has been dubbed the “Extra Terrestrial Vehicle”?  Last week Mike Vetter, creator of just such a ride sold his creation on eBay for $100,000. The car boasts a futuristic aerodynamic shape and sleek body lines. The interior is custom stitched with the highest quality leather, while on the outside the ETV boasts accent LED lighting and Lamborghini quality paint. The car is not all looks though, it can reach speeds up to 100 mph and can be raised or lowered 8’’ to accommodate daily driving. If that’s not enough, Vetter also added a back seat so family could ride along as well!