Stock Market Pullback? – Economic Data Disappoints

Before The Bell: S&P 500

Today’s U.S. reports were disappointing overall, and the mix of weaker income, consumption, and home sales, though with a robust inventory path, prompted downward revisions in our GDP forecasts to 5.5% (was 6.0%) in Q4 and 3.4% (was 3.6%) in Q1.

The personal income report revealed a bigger than an expected hit from unwinding stimulus, while consumption fell short, highlighting the need for this week’s new legislation.

The durable goods report mostly tracked assumptions, and robust inventories lifted Q4 GDP prospects. The weekly claims report proved better than expected, and we left our December nonfarm payroll estimate at 100k. The new home sales report under-performed in November after three big downward monthly revisions, though the last six sales rates are still the highest since 2006.

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The December Michigan sentiment rise was trimmed. We did see another weekly rise in the MBA mortgage applications index, though the purchase index fell, and the FHFA house price index jumped 1.5% in October to a new all-time high, after a record 1.7% surge in September. Some of the key data points:

  •  Income fell -1.1% and consumption fell -0.4%, after respective October swings of -0.6% (was -0.7%) and 0.3% (was 0.5%).
  • Real consumption fell -0.4%, after rising 0.3% (was 0.5%) in October.
  • The PCE chain price headline and core indexes were flat in November, leaving respective y/y gains of 1.1% and 1.4%.
  • Durable orders rose 0.9% after a 1.8% (was 1.3% ) October gain, leaving a 7th consecutive increase.
  • Durable orders ex-transportation rose 0.4% after a 1.9% (was 1.3%) gain, leaving a 7th consecutive increase.
  • We saw an -89k initial claims plunge to 803k from 892k (was 885k).
  • Continuing claims fell -170k to 5,337k from 5,507k (was 5,508k).
  • The insured jobless rate fell to 3.6% from 3.8%.
  • New home sales fell -11.0% to an 841k pace in November, with -115k in downward revisions.
  • The median new home price slid -0.7% to $335,300 in November to leave a 2.2% y/y rise.
  • Michigan Sentiment rose to 80.7 (was 81.4) in December from 76.9.
  • Current conditions rose to a 9-month high of 90.3 (was 91.8) from 87.0, while expectations rose to 74.6 (was 74.7) from 70.5.
  • The 1-year inflation measure fell to an 8-month low of 2.5% (was 2.3%) from 2.8%, and the 5-10 year inflation measure rose to 2.5% in November and December from a 7-month low of 2.4%.
  • The weekly MBA mortgage applications index rose 0.8% in the week ended December 18.
  • The FHFA house price index jumped 1.5% in October to a new all-time high, after a record 1.7% surge in September.

Bottom line

If you take all the recent data into consideration, we are heading towards some kind of a stock market dip. If we see more coronavirus lockdowns, no stimulus bill, or the failure of vaccines to work, we could be looking at the start of a pullback or even recession. Topple that with a reversal of the tax cuts and we heading into very rough waters.

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