(Wednesday Market Open) Stock index futures were flat ahead of the opening bell as investors anticipated an economic update from Federal Reserve Chairman Jerome Powell on Friday.
Market potential movers
The US Census Bureau released its July Durable Goods Orders Preliminary Report, which fell short of expectations in the form of a large goose egg. Forecasters were expecting growth of 0.6%. However, core durable goods orders were better than expected for the month, rising 0.3% and beating the estimate by 0.2%. Excluding defense spending – the part that is actually added to GDP – orders rose 0.4%, above the 0.3% forecast, but below the previous print of 0.9 %.
Durables failed to move the market as much as S&P 500 Futures Contracts ticked slightly lower with the Cboe Market Volatility Index (VIX) unchanged.
Meanwhile, the housing market continues to see weaker demand, according to the Mortgage Banker’s Association. Last week, mortgage applications fell by 1.2% while the average rate of mortgages over 30 years fell from 5.45% to 5.65%. After the market opens, the National Association of Realtors will release its Pending Home Sales Report.
A Bankrate.com survey showed that 70% of adults are worried about a recession by the end of the year. Some analysts fear the negative tone could become a self-fulfilling prophecy, as consumers may choose to hold back on purchases and companies may wait to make growth investments that could help boost the economy.
Friday’s Michigan Sentiment report is expected to provide more insight into how consumers are feeling.
President Joe Biden is expected to announce a $10,000 student loan forgiveness program today. According Business Intern, the program will target borrowers earning less than $125,000 per year. An estimate from the Wharton School says the program could cost $300 billion this year.
Earnings reports keep pouring in and here’s how investors reacted to a few of them during the premarket session.
- petco FRAME missed out on the top and bottom numbers due to rising costs, and its stock fell 5.79%.
- Intuitive INTU reported earnings and revenue above expectations and grew more than 5%. The company’s management has expressed confidence in the company’s long-term prospects.
- Nordström JWN reported failing earnings estimates despite higher revenue expectations. Still, it lowered its full-year earnings outlook, dragging the stock down 14%.
- Urban outfitters URBN also missed on earnings, but met revenue estimates on the nose. The stock fell 1.47% as it continues to battle rising costs and supply chain issues.
Revenue reports from Nvidia NVDA, Salesforce.com RCMP, Snowflake SNOW, and Autodesk ADSK are also expected later today.
Platoon PTON announced an agreement with Amazon.co.uk AMZN to sell exercise bikes through their platform. The news sent Peloton shares up 16% before the market opened.
Market Minutes Review
In light of Monday’s selloff, stocks remained relatively strong yesterday with the Nasdaq ($COMP) breaking out of several decimal places to close down 0.0002% on the day. The S&P 500® Index (SPX) was down 0.22% and the Dow Jones Industrial Average ($DJI) fell 0.47%.
Twitter TWTR fell 7.32% after learning that its former chief security officer had spoken out against what he claimed were weak cybersecurity policies at the company. Peiter “Mudge” Zatko claimed that the company’s security practices put users’ personal information at risk. There is much debate over whether the news affects the legal case between Twitter and You’re here TSLA CEO Elon Musk on Musk’s attempt to walk away from his Twitter acquisition.
The biggest US economic report of the day was the 12.6% drop in new home sales in July, according to the US Census Bureau. The number of new homes sold last month was forecast at 575,000 but came in at 511,000. Year-over-year new home sales fell 29.6% to a record low in six years.
National Association of Home Builders assistant vice president Danushka Nanayakkara-Skillington said the report was “another clear indicator that housing is in a recession”. Nanayakkara-Skillington cited higher construction costs and rising mortgage rates as reasons behind the lower numbers.
However, homebuilder stocks were relatively indifferent to the news, as the S&P Homebuilders Select Industry The index fell only 0.32%.
The real estate sector was the worst performer of the 11 S&P sectors with the Real estate sector selection index down 1.46% on the day. However, this sector focuses on REITs which are a much more diverse group of real estate investment strategies than just building houses.
Three things to watch out for
SELLING PRICE : Home prices are expected to continue to fall, according to data from red fin (RDFN). The real estate company said 21% of home sellers lowered their asking price in July, the highest number since the real estate platform began tracking price cuts in 2012. The biggest drops have been in states that had experienced an influx of pandemic migration. Boise Idaho, Denver Colorado and Salt Lake City Utah saw 69.7%, 58% and 54.8% of sellers cut their home prices in July.
ROOM TO RENT: While the housing market continues to weaken, the rental market remains strong, right? Well, maybe not. Although common wisdom suggests that people who can’t buy homes are flooding the rental market, RealPage says foot traffic for apartments is down. Normally, rental foot traffic peaks in the middle of summer, but the real estate analytics firm said it peaked in March and has practically declined since.
Apartments saw higher than normal traffic in 2020 and 2021 due to many people abandoning major cities in the early days of the pandemic. This could suggest that the fall in rental interest could be part of a period of “normalization”. However, in the face of a weakening housing market, the lack of rental interest is worrying.
EXPULSION SENTENCE: Federal moratoriums on pandemic tenant evictions ended in June 2021, but several states that have extended those moratoriums have ended them in recent months. Today, evictions are increasing dramatically. A National House Law Project investigation found that rental evictions in homes funded by Housing and Urban Development in the United States have reached pre-pandemic levels and could possibly increase.
Similar stories are breaking out across the country. Data from the Legal Services Corporation found that evictions in Virginia were back to 2019 levels. The New York Department of Investigation reported an increase in evictions each month in 2022.
Meanwhile, the Oregon Law Center reported that evictions have risen steadily in recent months with 1,122 in March, 1,188 in April, 1,266 in May and 1,470 in June. The number of evictions related to non-payment increased from 48% in July 2021 to 68% in June 2022.
For tenants, there could be some relief. RealPage said rents rose just 0.8% from June to July, just a third of the increase seen in the same period in 2021. The company said rent growth appeared to be slowing over a annual basis of 12.2% in July against 13.8 the previous year. %. If housing experiences a correction, rentals will likely see one as well.
Notable Calendar Items
August 25: Gross domestic product (GDP) and revenues of Dollar General (DG), Workday (WDAY), Dollar Tree (DLTR), Ulta Beauty (ULTA), Burlington Stores (BURL) and Gap (GPS)
August 26: Fed Chairman Jerome Powell speaks in Jackson Hole, on the PCE price index, Michigan consumer sentiment, personal income and earnings from Marvell Technology (MRVL) and Dell (DELL)
August 29: Dallas Federal Reserve Manufacturing Index
August 30: CB Consumer Confidence, JOLTs Job Openings and earnings from Crowdstrike (CRWD), Hewlett Packard (HPE), Chewy (CHWY), Best Buy (BBY) and Big Lots (BIG)
August 31 : Gains from Polestar Automotive (PSNY), Trip.com (TCOM), Cooper (COO) and Five Below (FIVE)
TD Ameritrade® Commentary for educational purposes only. SIPC member.
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