Rate Hike Fears Abate For The Week

Equities broke a 4-week losing streak as economic data helped relieve Fed fears, temporarily. With most of Q4 earnings season completed, 68% of S&P 500 companies have exceeded earnings estimates.

The bigger story might be analysts’ cuts to Q1 earnings estimates. Cuts in January & February averaged 5.7%, which is greater than the cuts averaged over the previous five years. This might come into play during the 2nd quarter as it appears the consumer is holding up well. According to the Atlanta Fed, consumer spending for Q1 has been revised higher to +2.5% from +1.2% in January. Last week, both Initial and Continuing Claims were lower than expected and lower than the previous week.

On the housing front, the 30-year rate has increased to 6.65% after dropping to 6.09% in early February, causing mortgage applications to drop, as well.

Existing Home Sales, a lagging indicator, seems to have flattened over the last 3 months, while New Home Sales and Pending Home Sales have picked up over the last few months. Pending Home Sales, a leading indicator, is at the highest level since August of last year. Consumers drive corporate earnings and make up two-thirds of GDP. There’s a distinct possibility earnings for Q1 could surprise to the upside, which would be good for equities. Until then, the market is absorbing Fed speak on a daily basis, which will keep trading choppy in the short-term.

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