US Equities Continue To March Higher Amid Positive Housing Data

Andamento del mercato - 19/07/2017

US corporate earnings and unfolding housing figures have been the primary drivers of momentum in what has otherwise proven to be a relatively quiet week.  Nasdaq futures are continuing their most recent ascent, notching fresh intraday highs after extending one the longest winning rallies since 2015.  In a rather surprising development following the tremendous weakness highlighted by the latest NAHB Homebuilder Sentiment Index, both housing starts and building permit applications rebounded significantly in June after dismal contractions witnessed back in May.

The gradual rise in interest rates has also added significant volatility to mortgage applications, as evidenced by the data produced by the Mortgage Bankers Association earlier in the session.  According to the industry group, mortgage applications reversed from a -7.40% decline last week to 6.30% for the week ended July 14th.  The reality is that many mortgage holders are rushing to refinance before additional rate hikes and balance sheet reduction.

The whipsawing housing sector data comes at a time when builders are increasingly pessimistic towards the outlook, especially amid rising construction costs blamed on the Trump Administration’s move to slap tariffs on Canadian lumber imports.  Although the sector has not experienced a serious correction despite rising interest rates and record prices, the shift in home-builder sentiment could still prove to be a worrying development.

Adding to the impression that data is overextended is the most recent Nasdaq rally.  Despite the positive headline indications from Netflix’s performance which drove the index higher, the company’s rapidly amassing obligations related to content licensing could prove to be a drag on financial performance.  While subscribers continue to climb, there are growing concerns that the user base is plateauing as the pace of cash burn continues to accelerate.  Even though the share’s performance have been enough to positively influence the entire index, just one bad result from one of the major benchmark components could be enough to sharply reverse the latest Nasdaq rally.

 

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