Volatility gripped the markets yesterday.  Initially the markets traded moderately lower on further Fed warnings about the necessity of further stimulus.  In mid-day, indices rallied on headlines that Treasury Secretary Mnuchin and House Leader Pelosi will meet “shortly” to discuss possible stimulus.  Late in the afternoon following a “big sell program” all markets went negative, ultimately closing with a 0.45% NASDAQ gain and 0.20% Dow gain.

Regarding yesterday’s data releases, new home sales greatly exceeded expectations but jobless claims moderately disappointed.

Speaking of new home sales, sales are at the highest level in 14 years.  The annual rate of sales in the last four months has increased more than 77%, the most for a comparable period since 1980.  The supply of new homes continued to fall.  At current sales pace, it would take 3.3 months to exhaust the supply, the shortest time frame in records to 1963.

Perhaps of considerable significance, the number of properties sold for which construction has not yet started jumped to the highest since 2006 thus suggesting builders may be busy for some time.

As noted several times, most people gauge their net worth by the value of their homes and the ability to sell their homes.

Commenting about jobless claims, claims were essentially unchanged versus the consensus estimate of a nominal decline.  Even though claims have declined over 88% from the peak, claims are still very elevated at 870,000.  To place the data into context, at the height of financial panic of 2008-09, claims never exceeded 665,000.

Next week is the last employment report before the election.  Recent confidence surveys have been considerably stronger than expected the result of the ability to obtain or change jobs, perhaps a direct contradiction to weekly jobless claims data.

Speaking of direct contradiction, St. Louis Fed Bank President James Bullard stated yesterday the “US economy may surge at a 35% annualized rate in the third quarter and the nation may be close to complete recovery by year-end.”

Bullard further remarked “with real GDP possibly rising at a 10% rate in the fourth quarter, national income at the end of this year would be in reach of the average level for 2019.

Perhaps the most contradictory remark is that he believed the economic recovery would remain on track “even without more fiscal aid,” commenting “the labor market outlook is bright given that many of the layoffs during the pandemic were temporary furloughs so there is room for a substantial decline in the official unemployment rate in months ahead.”

Wow!  If housing and the labor market ever works in sync, perhaps escape velocity or the illusive transition point where the economic expansion defined as 4% self-sustaining growth will finally be met after 12 years.  Such would be yet another black swan event.

What will happen today?

Last night the foreign markets were down.  London was down 0.63%, Paris down 1.80% and Frankfurt down 1.79%.  China was down 0.12%, Japan up 0.51% and Hang Sang down 0.32%.

The Dow should open moderately lower.  Issues weighing upon the opening includes a global uptick in virus cases, stimulus debate and general political rancor.   The 10-year is up 2/32 to yield 0.65%.


The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. The information contained herein has been compiled from sources believed to be reliable; however, there is no guarantee of its accuracy or completeness. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. The material provided in Daily Market Commentaries or on this website should be used for informational purposes only and in no way should be relied upon for financial advice. Please be sure to consult your own financial advisor when making decisions regarding your financial management. Members of FINRA and SIPC, Capitol Securities Management is a privately owned full-service retail brokerage and investment advisory firm headquartered in Richmond, Virginia. For nearly 30 years, we have been serving the needs of our investors. Today, more than 200 Capitol Securities Management investment professionals and support staff serve approximately 18,000 customer accounts from Southern Florida to the New England coast.