Key housing sector data may provide direction for Wall Street in the coming week as the market looks for confirmation of economic recovery and girds for the year-end holiday period.
Investors are expected to carefully monitor data on sales of new and existing homes for evidence that a recovery is on track in the sector at the epicenter of the financial crisis.
The main indexes closed out a mixed week ahead of a week marked by the US Thanksgiving Day holiday on Thursday.
The Dow Jones Industrial Average edged up 0.46 percent on the week to 10,318.16, a third straight week of gains for blue-chips.
The technology-heavy NASDAQ composite, however, fell 1.01 percent to 2,146.04 and the broad-market Standard & Poor’s 500 index shed 0.10 percent to 1,091.38.
In the past week, the market was chilled by data showing a 10.6 percent slide in last month’s housing starts, along with a drop of 4 percent in permits to build new homes, a leading indicator of the sector.
This makes data on existing home sales and new home sales more critical for investors, Sal Guatieri at BMO Capital Markets said.
“Several minor cracks are starting to form in the porous US housing market foundation,” he said. “After making limited headway through the spring, homebuilder sentiment has stalled in recent months, with buyer traffic and prospective sales flat-lining.”
With the two reports coming tomorrow and Wednesday, Guatieri said, “any disappointment could rock equities. A renewed slump in sales would almost certainly destabilize house prices — and fan recovery risks.”
Another report that could influence the market will be Tuesday’s revised estimate for US GDP in the third quarter. Most analysts expect a revision to show 3 percent expansion from a first estimate of 3.5 percent.
Although the report is backward looking, it could provide clues on the nation’s economic momentum coming out of recession.
Dean Maki at Barclays Capital said he expected the US GDP report to show a softer pace of growth at 2.5 percent.
“Despite the likely downward revision, we still believe that the third quarter will prove to be the first quarter of recovery and that it demonstrates a decisive turn in the economy,” he said.
“The first estimate of third quarter corporate profits will also be released with this report. We look for another gain as a result of rises in output and prices, coupled with falling hours, worked,” Maki said.
Some analysts are concerned that the huge rally since March of some 60 percent for the broad market has been the result of easy money from the Federal Reserve’s near-zero interest rates.
This, according to some analysts, has ignited a massive “carry trade” in which investors borrow at low rates to invest in riskier assets including stocks, commodities and bonds of other countries.
Although the Fed has shown no inclination to lift rates, the weak dollar has prompted growing complaints from around the world about a potential speculative bubble.
“The technical belief is that the dollar was oversold and is now likely going through a counter trade rally,” Standard & Poor’s analyst Sam Stovall said.
Bonds gained for the week. The yield on the 10-year Treasury bond eased to 3.356 percent from 3.503 percent a week earlier and that on the 30-year bond dipped to 4.295 percent against 4.394 percent. Bond yields and prices move in opposite directions.
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