A Relief Bid
The S&P futures are down just one point and are trading slightly below fair value. That indication suggests the cash market will start the day on a flattish note.
Just about every pre-market report is ascribing the softness to the disappointing earnings reports and guidance from Apple (AAPL) and Amazon.com (AMZN). The only thing is that both AAPL and AMZN are trading higher in pre-market action.
A number of analysts have come to the defense of both companies. That appears to be mitigating the impact of the headline disappointment along with the recognition that both companies are still seeing strong demand for their products/services, even if it is not quite as strong as analysts previously modeled. To wit, guidance from Apple and Amazon suggests revenues in the December quarter will be up approximately 12% and 24%, respectively.
Neither company had what could be called a stellar report, but the added realization that AAPL and AMZN had dropped 13% and 15%, respectively, since September 19 fits with the thinking that their relatively disappointing reports was priced in already.
Coincidentally, we have seen the S&P futures rebound from overnight lows (-12 points) as these stocks have bounced in pre-market action.
Even so, the understanding that these shining knights showed some chinks in their armor serves as a telling reminder that the economic and earnings environment is less than ideal.
That last point is encapsulated in today's release of the advance Q3 GDP report, which showed output increasing at an annual rate of 2.0%. That is up from 1.3% in the second quarter and is slightly ahead of the Briefing.com consensus forecast of 1.9%.
Third quarter growth was paced by positive contributions from personal consumption expenditures (1.42 percentage points), federal government spending (0.72 pp), and residential fixed investment (0.33 pp). Increases there were partly offset by negative contributions from exports (-0.18 pp), nonresidential fixed investment (-0.13 pp), and private inventory investment (-0.12).
Real final sales, which excludes the change in inventories, increased 2.1%.
Led by a 13% increase in defense spending, federal spending rose 9.6% in the third quarter. The strength there was a surprise (federal spending had declined in the four previous quarters) and offset a 0.1% drop in state and local government spending.
The GDP deflator was up 2.8% after a 1.6% increase in the second quarter.
The S&P futures continued their recovery effort after the GDP report on what can be labeled a relief bid -- relief that Q3 GDP wasn't worse than expected and relief that the reports from Apple and Amazon.com have not undermined market sentiment further
Read more: http://briefing.com/investor/our-view/page-one/a-relief-bid.htm#ixzz2ARG6Ezmv
Just about every pre-market report is ascribing the softness to the disappointing earnings reports and guidance from Apple (AAPL) and Amazon.com (AMZN). The only thing is that both AAPL and AMZN are trading higher in pre-market action.
A number of analysts have come to the defense of both companies. That appears to be mitigating the impact of the headline disappointment along with the recognition that both companies are still seeing strong demand for their products/services, even if it is not quite as strong as analysts previously modeled. To wit, guidance from Apple and Amazon suggests revenues in the December quarter will be up approximately 12% and 24%, respectively.
Neither company had what could be called a stellar report, but the added realization that AAPL and AMZN had dropped 13% and 15%, respectively, since September 19 fits with the thinking that their relatively disappointing reports was priced in already.
Coincidentally, we have seen the S&P futures rebound from overnight lows (-12 points) as these stocks have bounced in pre-market action.
Even so, the understanding that these shining knights showed some chinks in their armor serves as a telling reminder that the economic and earnings environment is less than ideal.
That last point is encapsulated in today's release of the advance Q3 GDP report, which showed output increasing at an annual rate of 2.0%. That is up from 1.3% in the second quarter and is slightly ahead of the Briefing.com consensus forecast of 1.9%.
Third quarter growth was paced by positive contributions from personal consumption expenditures (1.42 percentage points), federal government spending (0.72 pp), and residential fixed investment (0.33 pp). Increases there were partly offset by negative contributions from exports (-0.18 pp), nonresidential fixed investment (-0.13 pp), and private inventory investment (-0.12).
Real final sales, which excludes the change in inventories, increased 2.1%.
Led by a 13% increase in defense spending, federal spending rose 9.6% in the third quarter. The strength there was a surprise (federal spending had declined in the four previous quarters) and offset a 0.1% drop in state and local government spending.
The GDP deflator was up 2.8% after a 1.6% increase in the second quarter.
The S&P futures continued their recovery effort after the GDP report on what can be labeled a relief bid -- relief that Q3 GDP wasn't worse than expected and relief that the reports from Apple and Amazon.com have not undermined market sentiment further
Goldman on housing and the consumer
A chart from Goldman economists showing their projections for the housing market’s contribution to GDP growth through the end of next year:
(MEW is “mortgage equity withdrawal”.)
And from their commentary:
Whether or not you agree with their estimates — and we’re a little more optimistic, though we share their worries about lending standards — this seems a sensible way to frame the potential macroeconomic impact of a housing recovery.
Last week we also passed along some recent Barclays commentary about housing’s impact on the consumer, and we also recommended this NYT article from a year ago explaining how economists haven’t much explored the relationship between housing and consumer spending. Looks like that’s changing.
(MEW is “mortgage equity withdrawal”.)
And from their commentary:
From a macroeconomic perspective, a key question is the impact of this recovery on real GDP growth… There are different ways to split the aggregate GDP impact, but a simple approach is to focus on three broad categories:And here were their assumptions:
1. The direct GDP contribution from residential investment, which includes construction of new homes, improvements and alterations, and broker commissions on sales of new and existing homes.
2. The consumption impact of changes in housing wealth and active mortgage equity withdrawal (MEW), defined as cash-out refinancing and home equity borrowing.
3. Multiplier effects from changes in residential investment or housing wealth/MEW via the labor market, bank balance sheets, consumer confidence, and adjacent sectors such as furniture purchases. …
Exhibit 2 makes three broad points.
First, the impact of housing is shifting into positive territory. The overall impact averaged around -1/4 percentage point in 2010-2011, stands at around +1/4 point now, and is likely to increase to +1/2 point in 2013. These numbers are equivalent to a move from a depressed housing market to a “normal expansion” as we defined it late last year, although they still fall well short of a “boom.” (These terms are all defined with respect to the growth contribution of housing; in level terms, housing still remains far short of normal, especially as far as residential investment is concerned.)
Second, most of the positive contribution to growth has so far come from the direct impact of residential investment, which we expect to contribute around 0.3 percentage points to growth next year. However, the wealth effect is also starting to contribute to the improvement as the swing from continued house price declines in 2010-2011 to house price gains in 2012 gradually makes itself felt in consumption.
Third, it is important to keep the improvement in perspective. Housing is likely to remain less important from a macroeconomic perspective than in the prior cycle, when the combined impact of residential investment and the wealth/MEW effect on consumption ranged from +1 percentage point in 2003-2005 to -2.5 points in 2008.
The residential investment impact is taken directly from the GDP accounts, and the projection is based on our forecast that real residential investment growth will accelerate from 10.4% year-on-year in 2012Q2 to 13% in 2013Q4. The consumption impact via housing wealth and MEW is based on the consumption function estimated in our 2006 paper “Housing Holds the Key to Fed Policy” adjusted for the “leakage” from consumption into changes in net exports. In order to project these effects forward, we assume that house prices grow at a 2% pace from mid-2012 to mid-2013 and a 2.8% pace thereafter, in line with our most recent forecast.The economists write that the housing recovery won’t have the same kind of effect as in prior expansions because mortgage lending standards are easing more slowly this time round.
Whether or not you agree with their estimates — and we’re a little more optimistic, though we share their worries about lending standards — this seems a sensible way to frame the potential macroeconomic impact of a housing recovery.
Last week we also passed along some recent Barclays commentary about housing’s impact on the consumer, and we also recommended this NYT article from a year ago explaining how economists haven’t much explored the relationship between housing and consumer spending. Looks like that’s changing.
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