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Economic news was better than expected Friday, but there are concerns that this might lead to Fed tightening. Data on durable goods orders, consumer sentiment and new home sales all exceeded expectations and oil prices have fallen on the session. This has led to gains for stocks, but tepid ones at best as traders try to figure out what the FOMC will do in the near term with interest rates.

On Thursday, existing home sales fell more than expected, leading to worries about today’s new home sales release. However, new home sales in June fell just 0.6 percent to an annualized rate of 530,000 units. This is the lowest reading since March, but May’s figure was revised higher by 21,000 units to 533,000 and April was revised higher by 17,000 units to 542,000. The year on year comparison remains very weak with new home sales down 33.2 percent.

Supply remained very high for new homes, but did fall to a rate of 10.0 months from 10.4 months in May. This decline in inventory levels also benefited home prices, which actually rose 1.4 percent during June to $230,900. This puts the median price of a new home down just 2.0 percent in the past year. Though it is too early to say a recovery is underway, this report is a step in the right direction for the beleaguered housing sector.

Consumer sentiment has been a major concern for the Fed and traders, but there was some good news on this front this morning. The University of Michigan consumer sentiment index rose to 61.2 in July from 56.4 in June and 56.6 at mid-month.  Inflation expectations eased by 2-tenths to 5.1 percent for the one year and 3.2 percent for the five year outlook. The improvement in this sentiment report will raise attention to the Conference Board report on confidence due out next Tuesday.

The durable goods orders report for June got things off to a positive start this morning. Durable goods orders rose by 0.8 percent during the month, which was well above expectations for a decline of 0.4 percent. Excluding the transportation sector, orders rose 2.0 percent with nondefense capital goods orders excluding aircraft rising 1.4 percent. This data was a pleasant surprise and was another reason that stocks saw gains on the session.

The question now is will the FOMC hike rates on the view the economy is showing improvement? Oil prices continued to fall Friday, which does ease some inflationary concerns. Crude futures for September delivery dropped by $2.09 a barrel to a price at $123.40. Ironically, crude prices fell despite the fact economic news was better than expected. Oil fell nearly five percent this past week on the concern that a slowing economy will ease demand for energy. It wasn’t but two weeks ago that crude prices hit a high above $147 a barrel.

Next week’s economic calendar is on the light side, but the reports that are on tap could have a major impact on stock prices. The main releases on the tap are the ISM Mfg. Index, the GDP report and the always important employment situation report. Crude prices will also remain in focus with the bulls hoping further declines are in store.

Jody Osborne
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education 

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