Trading volume is going to be light this week as America celebrates Thanksgiving on Thursday.
But everyone will want to keep an eye on the business news wires.
“The data docket is relatively full in what is a holiday shortened week for financial markets,” said Deutsche Bank’s Joe LaVorgna.
We’ll get crucial up-to-date reads on consumer sentiment and the health of the housing market.
Meanwhile, the stock market is at all-time highs.
Here’s your Monday Scouting Report:
The Consumer Is Spending: Last week, we learned that U.S. retail sales jumped a whopping 0.4% in October, which was much stronger than the 0.1% increased estimated by economists. This despite a federal government shutdown that dominated the month.
“We calculate that this good start to the quarter places overall real (inflation-adjusted) personal consumption expenditures for Q413 on track to pick up to about a 2½% annual rate after the disappointing 1½% pace posted in Q3,” said UBS’s Maury Harris who added that jobs and prices are supportive, wealth effects are becoming more broad-based, credit is expanding, and home sales are set to rise.
- Pending Home Sales (Monday): Economists estimate pending sales climbed 1.1% month-over-month in October. “While mortgage purchase applications have continued to trended lower in recent months (despite lower mortgage rates), we saw a huge 5.6% mum plunge in pending home sales in September,” noted Bank of America Merrill Lynch’s economists. “Considering how volatile housing data can be on a monthly basis, we should see some give back in October.”
- Dallas Fed Manufacturing Activity (Monday): Economists estimate this regional activity index jumped to 5.0 in November from 3.6 in October.
- Housing Starts (Tuesday): The Census will publish both September and October numbers due to government shutdown-related disruptions. Economists estimate 920,000 starts at an annualized rate in October. “Shortness of supply should encourage increased starts,” said Credit Suisse’s economists. From Morgan Stanley’s Ted Wieseman: “Most of the increase in starts we anticipate is in multi-family construction, however. The homeownership rate stabilised at a seasonally adjusted 65.1% in Q3, down from a peak near 69% from 2004-06, but our housing analysts think the downtrend has further to run in coming years, which should continue to support a mix shift towards rental from owner occupied housing and to multi-family from single-family new construction.” Wells Fargo’s John Silvia noted “construction employment increased during both months, indicating that housing starts regained some momentum.”
- S&P/Case-Shiller Home Price Index (Tuesday): Economists estimate the 20-city home price index climbed 0.9% month-over-month in September, or 13.0% year-over-year. “This nearly matches the average pace over the prior three months, but is a slowdown in appreciation from the beginning of the year,” noted Bank of America Merrill Lynch economists. “We expect home price appreciation will continue to slow into the end of the year, reflecting the slowdown in housing demand this summer.”
- Consumer Confidence (Tuesday): Economists estimate that the Conference Board’s measure of sentiment climbed to 72.4 in November from 71.2 in October. “It is unlikely that consumer confidence rebounded as quickly as it fell,” argued Wells Fargo’s John Silvia. “Despite the government turning the lights back on, there is still no budget deal, and the date when the debt ceiling will be reached again is fast approaching. Furthermore, the unemployment rate ticked up, which likely added to the concerns of the consumer. However, we expect that consumers have noticed that the economy continues to make modest gains.”
- Richmond Fed Manufacturing Index (Tuesday): Economists estimate this regional activity index climbed to 3 in November from 1 in October.
- Initial Unemployment Claims (Wednesday): Economists estimate jobless claims climbed to 330,000 from 323,000 a week ago. “We suspect the 21k decline in jobless claims in the latest week was exaggerated by seasonal factors,” said UBS’s Sam Coffin. “The last year with a similar calendar to this year was 2008, and at this time in 2008, jobless claims were rising about 20k per week. We expect some downward bias to persist into the upcoming (Thanksgiving) week.”
- Durable Goods Orders (Wednesday): Economists estimate orders fell 1.9% month-over-month in October. Nondefense capital goods orders excluding aircraft is estimated to have increased by 0.8%. “Pullbacks in the volatile civilian aircraft and defence categories should result in a weak headline durable goods orders reading after upside in these categories fully accounted for the 3.8% surge in overall orders in September,” said Morgan Stanley’s Ted Wieseman. “Beneath these swings, business surveys have generally continued to point to improvement in capital spending plans, so we look for core capital goods orders to start getting back on track with a 0.5% rise after a 3.7% drop in the three months through September partly reversed a 9.5% gain in the first six months of the year.”
- Chicago PMI (Wednesday): Economists estimate this regional PMI fell to 60.0 in November from 65.9 in October. “Before last month’s surge of 10.2pts, the index has averaged 53.9 since the start of the year,” said Bank of America Merrill Lynch economists. “Our forecast for November assumes a partial reversion to the mean. We do not expect a full reversion to the mean in November because October’s new orders index, which came in at the highest level since October 2004, suggests that the surge in production will last for at least another month.”
- U. of Michigan Consumer Confidence (Wednesday): Economists estimate that Michigan’s measure of sentiment climbed to 73.0 in November from 72.0 in October. “November Michigan consumer sentiment will likely be revised up slightly in the second pass, putting the month roughly in line with October,” said Citi’s Peter D’Antonio. “However, as the rise in optimism seems to have come late in the month, some of the improvement may actually boost the early December reading instead.”
The stock market is at an all-time high. And sentiment is looking pretty frothy too.
“This week’s Panic/Euphoria reading was 0.52; versus last week’s revised number of 0.49, which points to two weeks in a row of euphoric signals, matched by increased money flows,” said Citi’s Tobias Levkovich in a note to clients on Friday.
This is a contrarian indicator, which means euphoria is a bad sign for things to come. And the last time we saw this level of euphoria was back in 2008 before the stock market crashed.
“Euphoria readings indicate the market may retreat with an 83% historical probability of losses in the next 12 months,” added Levkovich.
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