Stock Market Forecast – Prices Slip Despite Strong Consumer Confidence

US stock prices edged lower on Tuesday, after initially opening in the red following a softer than expected US housing starts and sour guidance from Home Depot. Later in the trading session, the Conference Board reported stronger than expected confidence levels, which helped stock prices rally but they fizzled into the close. Fed Chair Jerome Powell met with the Senate providing his semi-annual testimony to the Congress. Powell will testify in front of the House on Wednesday. The markets were led higher by defensive sectors. Consumer staples and Utilities led the market higher while the Materials and Energy sectors bucked the trend.

Housing Starts Disappointed

Housing starts tumbled in December dropping by 11% to a two-year low, but builders applied for more permits in a sign that a rebound may be near. The rise and fall of interest rates and the pivot of the Federal Reserve likely say a stabilization to housing in the Q1. Housing starts dropped to an annual rate of 1.08 million in the final month of 2018 from a revised 1.21 million in November. Building permits, on the other hand, edged up 0.3% to a 1.33 million annual pace. Construction was flat in the Northeast and fell sharply everywhere else. The biggest decline occurred in multi-dwelling projects of two units or more. They took a 20% dive in December versus a 6.7% decline for single-family homes.

Housing Renovations Also Dipped

Home Depot shares declined after the company reported fourth-quarter earnings and sales below expectations. The company delivered adjusted earnings of $2.09 per share, below estimates of $2.16, while same-store sales rose just 3.2%, versus expectations of a 4.5% increase. This is a sign that renovations are on the decline. The home goods store’s performance, which serves as a gauge of confidence in the U.S. housing market, is also set to come in light this year. Guidance by Home Depot now is lower as the company expects same-store sales growth of 5% for the full year, 20 basis points short of its 2018 rate.

Confidence Declined

The Conference Board reported that the consumer confidence index rose to 131.4 from 121.7 in January. The index measures consumers’ assessment of current economic conditions and their expectations for the next six months. Both rose in January. Consumers’ views of today’s economy were the best since  December 2000.

Fed Chair Power Testified in Front of the Senate

Fed Chairman Powell testified before the Senate Tuesday and will perform in front of the House Wednesday.  Not much has changed since the January 30 FOMC meeting and so Powell repeated the Fed’s recent script of stressing “patience” and “flexibility.”  The next FOMC meeting is March 20 and a pause then is a foregone conclusion.  New staff forecasts and Dot Plots will be released then.  Hopefully, we will also get some more clarity on the balance sheet issue.