By: Russ Kamp, Managing Director, Ryan ALM, Inc.
Interesting data releases today.
On the one hand, we have existing home sales data that came in light at 4.09 million (annual units) relative to forecasts of 4.17 million for the 10th monthly decline in a row. This got equity markets rallying as investors cheered the slowing housing market and the potential impact that has on interest rates (down). But we also had the monthly release of the Consumer Confidence Index that came in hot, blowing away expectations at 108.3 vs. 101.2! Since there is a positive correlation between sentiment and spending, bond markets have begun to sell off. Treasury yields which had fallen to start the day are basically flat at this point.
What will the Fed do? Do we have an environment in which the consumer has shifted their spending away from housing to other goods and services, especially services, making the Fed’s job more difficult in fighting inflation, or is the dramatic fall in housing activity a prelude to collapsing spending? Equity investors would have you believe that the Fed will soon realize the error of their way and begin the great pivot, while bond investors remain far more cautious. Of course, only time will tell, but it is always interesting to see what drives markets and investors’ actions.