Friday, July 20, 2012

Sector Performance Update for Week of 7/16/2012

With respect to economic data, this week was ok and not so ok, which is exactly what the QE3 hopeful ones do not want to see or hear.

Next week will be a busy one, with new and pending home sales for June, weekly jobless claims, initial estimate of Q2 GDP annualized growth and the University of Michigan's final reading of consumer confidence for July scheduled to be released.  Our Q2 GDP estimate is 1.6% which is above the very low 1.2% consensus, but certainly not a rate justifying S&P 500's YTD performance.  Again, the equity market is moving along hoping for just one more sign of Bernanke extending his helping hand.

Mixed Economic Data for the Week

Empire manufacturing survey surprised on the upside.  Unfortunately, that indicator is known for its volatility.  When it comes to the monthly manufacturing ISM, the Philly business survey is a slightly better indicator.

June retail sales were very disappointing, which as we said might have been good news for the QE3 seekers. 

Fear of deflation has been put to rest for the time being, given the in-line June CPI print, which is not very good news for the pro-QE3 group.  However, as of the end of June, there were also no indications of too much inflation, which helps keep that QE3 option on the table.

June industrial production came in above consensus, while capacity utilization was slightly below consensus.  Again, this combo is not necessarily good news for QE3 proponents.

Building permits and housing starts were overall positive, but the impact was short-lived as we expected.  XHB ended the week pretty much unchanged from the prior week.  In addition, according to the MBA mortgage index, purchase applications declined, while refi's increased.

Initial jobless claims disappointed once again; and the prior week was revised up, once again.  Things are not as rosy as the holiday shortened week numbers supposedly indicated, which we touched on last week.

Lastly, the Philadelphia Fed business survey, June existing home sales, and the leading economic indicators, were all disappointing.

While not everything was positive, they were also not as bad as we believe is necessary to ignite a launch of QE3.

Sector performance update for this week is provided below.

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