The Daily Difference: Market Update January 27, 2014

Last week brought back volatility, a component that was not missed during the recent bull market. Although emerging markets were blamed for the selloff, the more likely culprit was a combination of Argentina devaluing their Peso (a small component of global currency holdings), and the unwinding of the carry trade due to a spike in the Yen (a very large component of global currency holdings). Keep in mind the demographics of emerging markets as volatility is likely to continue:

A compelling argument to invest in EM for the long term, no??

Economic Calendar:

• Monday: New home sales: the numbers were especially soft: 414k new homes were sold in the month of December, vs. a consensus estimate of 450k. The number was lower than the lowest number in the range (420k); furthermore, the last two months were downwardly revised by a total of 30k. Although new home sales had been a bright spot due to tight supply of housing, the real market mover has been existing home sales.
• Tuesday: Durable Goods Orders: Orders are expected to be decent, continuing the trend set in November and December. The number is volatile due to the inclusion of transportation (cars and trucks), although the ex-transportation number has been moving up each month at a rate of roughly 1%.  Most expect this trend to continue.
• Tuesday: S&P Case-Shiller Home Price Index: A key component in the recovery, rising housing prices add leveraged growth to consumers’ balance sheets. The last few years have seen double digit growth, and most expect this number to continue to rise 0.5-1.0% per month. Despite the increase in mortgage rates, this number has remained resilient.
• Tuesday: Consumer Confidence: Often considered a strong leading indicator of household spending, and big moves in this number will likely affect the market. Most are expecting a slight increase.
• Wednesday: FOMC Meeting Announcement:  This is the big one!! Expect a market update a little after noon on Wednesday. The big question is whether they will continue to taper given the grim jobs report last week.
• Thursday: Jobless Claims: Most economists are interested in whether the continuing claims component is starting a new trend, as it has ticked up the last few weeks. If a new trend is developing, expect the tapering process to slow.
• Thursday: Pending Home Sales: The most important home number of the week is expected to be decent. Despite the fact new home sales have taken a dip since June (when mortgage rates spiked), many are expecting this trend to reverse due to the lack of supply of homes and favorable affordability ratios.
• Thursday: GDP:  The last GDP reading was very encouraging, although more than half of the Q3 growth came from inventory buildups. Although the consensus calls for 3 % growth, I am skeptical give the accrued growth over the last few quarters.
• Friday: Personal Income and Outlays: The most important component, wages and salaries, has been trending upward. This will be integral to meeting the Fed’s 2% inflation target!