Here’s the news of the week – and how we see it here at McAlvany Wealth Management:

Equities Stirred but Not Shaken

US market action for most of the week was a real snoozer until Wednesday. At that time, the economic data took on a positive tone. August new home sales beat expectations handily, rising 18.8%, and durable goods orders (ex-trans) rose by 0.7% after a disappointing decline of 0.5% in July. Those numbers sent stocks into a Fed-rate-hike-driven tailspin – which trumped dovish remarks made by the Fed just last week. The bearish sentiment lasted until Friday, when a substantial portion of those losses were reversed – for no apparent reason.

MWM 14, 9-26 Recap MWM 14, 9-26 Box ScoresPerhaps traders felt that stocks deserved a bounce after the major indexes touched their 50-day moving averages, or they discovered that the economic data was in fact weaker than the headlines had suggested. New home sales were cited at 504,000, but that figure was augmented by a hefty seasonal adjustment of 463,000. Without that boost, sales of new homes would have registered a large contraction. In addition, existing home sales fell 1.8%, mortgage applications fell 4.0%, and closings at home builder KB Homes fell 2.0% – all within the same month and/or quarter.

Despite Friday’s rally, US stocks finished in the red for the week, as did several world markets that moved in sympathy. Japanese stocks were the only standout, stabilizing after Shinzo Abe admitted that massive BoJ QE programs (that have cratered the yen by 23.0% in two years) may be doing more harm than good to the Japanese economy. We just wonder if other central banks are paying attention (e.g., the ECB). Away from stocks, Treasuries rose slightly against the cautious tone set in equities, while the dollar rose rather sharply at the expense of the precious metals.

As for the dollar rally and corresponding gold selloff, they’re a bit overdone; neither is going definitively up or down at this point. We still have some headline risk in the pipeline, but, as we head into September, the data should begin to change. Traders are expecting worse outcomes, at least from the perspective of the housing market. There, put option prices (on homebuilders ETF: Ticker XHB) have hit 14-month highs. What that means is that the pros are telling you they have no confidence in a “self-sustained” economy beyond tapering of QE to zero (currently at 15.0 billion/mo.). This should bode well for the precious metals in the near future, even though a brief visit below the $1,200 level by gold may still be the technical order of the day.

Best Regards,

David Burgess
VP Investment Management