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  1. Home
  2. / Investing
  3. / Financial Services

Housing, Confidence Building Fed's Case for a Hike. And That's OK

Rate hikes are not to be feared -- the economy is on sound footing.
By MARCO MAZZOCCO Aug 31, 2016 | 09:47 AM EDT

A typically slow end-of-summer trading week has been made that much slower as we await yet another "most important ever" nonfarm payrolls report on Friday. To be fair, this jobs report actually is important because a September rate hike by the Fed is contingent on the economy showing decent job creation.

Market activity so far this week has been fairly mute, with the S&P 500 drifting up seven points since Friday to finish at 2176 at Tuesday's close. At least starting on Wednesday, there will be a significant amount of economic data to keep us entertained until the big payroll report.

With that said, we still got a few pieces of data on Tuesday that play into the strength of this market and the economy. First was the June S&P CoreLogic Case-Shiller Indices, which showed continued gains for national housing prices, albeit at a slower pace. Overall, the indices have increased 5.1% for the year, unchanged from May, with David Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices saying, "Overall, residential real estate and housing is in good shape."

One of the best parts about the S&P housing data is the regional/city level analysis. The data show the Pacific Northwest leading the country, with double-digit gains in places such as Portland, Ore. and Seattle, Wash. Interestingly, even Dallas, Texas was up 8.9%, indicating that efforts to diversify the local economy away from the energy sector has been working. And Las Vegas, Nev., which was one of the epicenters of the housing crash, is up 5.7% for the year. The weakest gains, at 2%, were seen in New York City and Washington D.C.

The strength in housing is something that the Fed can use as a reason for raising rates in September. One of the main goals of the Fed's drastic moves in monetary policy since the financial crisis was to revive the housing market, and this has been done. Opponents to rate hikes will argue that hiking rates will crash the housing market, but that's not the case now since demand is so strong. Even If higher financing costs were able to decrease affordability, at this point, that would be a welcomed occurrence.

The next data point, which really falls in line with the focus of this column, was the release of the August Conference Board Consumer Confidence Index . August data came in well ahead of expectations with excellent internals. At 101.1, the index is actually at its highest level since September 2015. Also in the survey, labor data showed significant improvement in the jobs are "plentiful" category while the jobs are "hard to get" category moved up just slightly.

Observing various consumer confidence reports, they seem to fluctuate with equities so I'm not that surprised to see a good number here with stocks trading close to all-time highs. However, the labor market readings in the survey are exceptionally positive and deserve attention.

As we get closer to Friday, markets will likely become more static as investors await the payroll numbers. But that's OK. There is plenty of homework to do in the interim with all the data coming out.

The bottom line here is that as the Fed meeting becomes a focal point, rate hikes are not to be feared. Even when stocks get knocked down by aggressive trading in futures markets that like to play the "good news is bad news" game, those are just set-ups for those of us that know the economy is on sound footing.

And that's what will drive equities higher in the long term.

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TAGS: Financial Services | Investing | Economic Data | Jobs

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