George Chamberlin's Money in the Morning

August 28, 2014

Stocks are losing their momentum. That was the report yesterday from Bloomberg after the close of trading, a day where the Dow industrials rose for the 11th time in the past 14 sessions and the S&P 500 closed at a new record high. If that is how Bloomberg describes losing momentum, then keep it coming. Unfortunately, stocks are trading lower today not because of bad economic news or disappointing corporate earnings updates, but because of renewed global tensions, especially the conflict between Ukraine and Russia.

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Stocks are losing their momentum. That was the report yesterday from Bloomberg after the close of trading, a day where the Dow industrials rose for the 11th time in the past 14 sessions and the S&P 500 closed at a new record high.

In fact, today's news is rather good. The Commerce Department revised the initial reading of the gross domestic product for Q2 from a gain of 4.0 percent to 4.2 percent. The report has about a thousand moving pieces but the really good news was a significant increase in spending by businesses, one of the true missing links in the recovery. Spending on structures such as office buildings rose by 9.4 percent, revised higher from the initial reading of 5.3 percent, and spending on equipment jumped to 10.7 percent from the original 7.0 percent. Corporate profits rose 8.0 percent in the quarter after dropping 9.4 percent in the first three months of the year. Note to Bloomberg: This is what momentum is all about.

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Also of interest is the weekly reading on claims for unemployment benefits. The number of people filing fell by 1,000 to 298,000 -- not a big decline, but the number stayed below 300K.

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There's another report today of interest, especially to those suggesting real estate is in trouble. The National Association of Realtors said pending home sales rebounded in July and have now advanced in four of the past five months. Pending sales -- transactions in the escrow process -- rose nationwide by 3.3 percent and were up 4.0 percent in the West. "Steady job additions to the economy are helping family finances and giving them added confidence to enter the market," said NAR economist Lawrence Yun. Let me explain why this is good news. A pending home sale will very soon become a real home sale. This should translate to higher sales numbers for August and September when reports are released in the near future.

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Speaking of real estate, Freddie Mac reported this morning that the average rate on a 30-year fixed rate loan held steady in the past week at 4.10 percent, down from 4.51 percent compared to a year ago. Interest rates in general are trending lower today. The average rate of a 10-year U.S. Treasury note has fallen to 2.34 percent, the lowest level in nearly 14 months. The renewed tensions in Ukraine, as always, pulls global money into the U.S. dollar and Treasury securities, still the safest place in the world.

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Since we won't be able to watch the Chargers-Cardinals game live tonight - a delayed replay at 10 p.m. -- it will make it easy to instead watch some college games. The season for the schools gets off to a fast start with a few excellent matchups including Tulane at Tulsa and Rutgers at Washington State. Both should be high-scoring games with players on the field for the love of the game.

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An important threshold gets crossed. The two-point gain in the S&P 500 index yesterday was hardly anything to write home about. But it was just enough to take the broad-based index to a close above 2,000 for the first time ever. The continued absence of sellers has steadily pushed stock prices up for more than a month and has shattered the old adage “Buy in October, sell in May." The Dow industrials started May at 16,500 and finished yesterday at 17,106. Anyone who followed the conventional wisdom has missed a gain of more than 600 points on the blue chip index. The S&P 500 began May at 1,883 and is now at 2K. Tell that to all the bears who keep begging for a crash.

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