Stocks Trade Mixed With Retailers Buoying the Cyclicals

Stock prices were mixed on Tuesday lead higher by Real-estate and Cyclicals. In the discretionary space, retailers were the biggest winners, with Target and Kohls leading the charge after better than expected earnings. New Home sales rose more than expected, which helped buoy the builders. China lower its growth target but says it will generate stimulus. All three major US indices closed slightly in the red.

New Home Sales Climb

Contrary to Monday softer than expected construction spending figure for December, Tuesday US new home sales hit a 7-month high. According to the Commerce Department, new homes sales increased by 3.7% for December which was the highest level since May 2018. Expectations were for new home sales to decline by 8.7% to a total of 600K units for December. The November figures were revised lower to 599K units, down from the initial report which was 657K units. With no revision, the December figures would have shown a 5.4% loss which still would have been better than the 8.7% loss expected for December.

China Lower its Growth Target

In the state of the Chinese Union, the National People Conference, Chinese authorities lower growth expectations. The deficit to GDP ration was raised to 2.8% in an effort to stimulate the economy. The central bank will fund local bonds to try to stimulate infrastructure. Chinese officials reduced their annual growth target to a 6-6.5% range compared to a prior estimate of 6.5%.

The Fed’s Rosegren Said It Could Be a While Before there is Clarity

In a speech today, Eric Rosengren, president of the Federal Reserve Bank of Boston, said earlier concerns of rising growth and accelerating inflation have dissipated. At the same time, slower growth in Europe and China are weighing on sentiment and making it difficult to be upbeat on the U.S. economy staying strong. Rosengren said It may be several meetings of the Federal Open Market Committee before Fed policymakers have a clearer read on the risks to the economy.

Home Prices Decelerate

The dip in treasury prices in January could provide the needed boost the housing sector desperately needs. Home prices in January rose at the slowest pace in nearly seven years. Home values in January were 4.4% higher year over year, smaller than the 4.7% annual gain in December. Price gains have been shrinking since April when they peaked at a 6.6 percent gain. January’s read was the smallest gain since August 2012.

Larry Summers Warns of Socialst Programs

In an interview on CNBC, former Treasury Secretary Lawrence Summers said that social plans that advocate borrowing money without having the revenue to pay for them is a very dangerous approach. He was commenting on programs such as Medicare-for-all, or the Green New Deal that are backed by self-described Democratic socialists Representative Alexandria Ocasio-Cortez and Senator Bernie Sanders. Summers said that arguing for more fiscal stimulus to boost economic growth would provide the money needed to jolt the economy and finance all of these programs.

GE Said the Company Would Produce Negative Cash Flow

General Electric Company Chief Executive Larry Culp said on Tuesday that GE would have negative cash flow in 2019 as the power business continues to struggle to turn the company around. According to Culpthe services turbines business that converts fuel into electricity, has been hurt by mismanagement.