Stocks ended the week with a thud as PMI readings from the US came in lower than expected falling from 53 to 52.3 which is the lowest reading in 21 months. Data from international economies is also a growing concern, with China and Europe being the most significant factors. The Dow took away all its gains for the week and finished down 460 points to close at 25,502.
Global economic concerns are once again injected volatility into the markets. The specific cause of today’s pullback appears to be Germany which reported its worst PMI or “purchasing Managers Index” for manufacturing since 2012. German’s PMI has now been down 14 out of the last 15 months. The reading came in at 44.7 missing estimates calling for a reading of 48. A reading this low means that Germany could be in a recession. Germany is feeling the heat with trade issues, Brexit, slowing global car sales and boatloads of Tesla Model 3’s hitting the shores of Europe. The weak PMI reading caused a flight to safety with German 10-year bond yields dropping to zero and causing the US 10 year to fall as well and inverting the yield curve. Shares of Deutsche Bank are down 7% this week. A reading above 50 suggests expansion while a reading below 50 suggests contraction. From an economic standpoint, Europe is struggling.
The US housing market shook off the winter blues and sales of previously owned homes had the biggest jump since 2015 with an 11.8% increase. Median sales price was $249,500 up 3.6% from a year ago. Mortgage rates are subdued, incomes are growing, and more inventory all lent support to the pop in sales. This puts the sales pace at 5.51 million homes per year well above estimates calling for a pace of 5.12 million units.