U.S. stock market activity was a boring as anytime in the past couple of months as traders wait for the election to play out before making short-term bets at this point. Actually to call it boring is a bit inaccurate, but everything’s relevant, right? For normal times the 1.7% move from peak to trough in the S&P 500 yesterday would have been something to talk about, but not these days.
While the indices ended pretty much flat we did see energy, basic materials and consumer discretionary shares record meaningful losses of 2.03%, 1.54% and 0.96%, respectively. The very weak manufacturing data, which we’ll discuss below, drove these sectors lower as recession concerns hit these stocks the hardest.
Health-care, financial and utility names – two of which are traditional safe-havens – were the best performers up 0.68%, 0.29% and 0.29%, respectively.
Market Activity for November 3, 2008
Economy
On the economic front, the index that tracks nationwide manufacturing activity confirmed what the Chicago factory index illustrated on Friday; manufacturing is showing the effect of the credit freeze-up, halt in business spending and slow-down in global growth.
The Institute for Supply Management’s (ISM) manufacturing survey fell to the lowest level in 26 years, breaking through (but just barely) the bottom it hit during the 1990-1991 recession and touching a reading not seen since the 1982 contraction – although the index posted lower readings than this during that tough period back in the early 1980s.
The ISM reading came in at 38.9 for October after an already weak 43.5 in September – the sub-indices also show the economic downturn has intensified. We’ll have to wait for the next two readings to see whether this level of weakness was a transitory event due to the credit disturbance that took place last month or if this is a more lasting condition.
As stated, this is the lowest reading since the 1981-82 recession (a downturn that was significant as the Federal Reserve jacked fed funds to 15%-plus to quash double-digit inflation). ISM spent 13 straight months below 40 during that period, so by comparison, we haven’t seen anything close to that just yet.
Both the production and new orders indices within the report showed meaningful weakness – actually lower readings than the 1981-82 recession -- moving back to the 1980 contraction.
A decline of this magnitude for new orders is a pretty clear indication the November reading will be equally abysmal.
Export orders hit the lowest level on record, but this segment was just added to the ISM index in 1988 (back then ISM was the NAPM index) so we can’t see how it stacks up to the 1980 or 1981-82 contractions.
In a separate report, the Commerce Department showed construction spending fell in September; however, the 0.3% decline was better than expected. Residential construction continues to weigh on the figure, down 1.3% for the month and by 27.7% over the past year. Residential construction combines single and multi-family dwellings; separating single-family homes out, the figure is down 41.3% past 12 months! While harsh, this is simply a reality that needs to play out as the inventory-to-sales ratio of new homes remains elevated.
That said, we have seen the number of homes available for sale (which is not in relation to sales) plunge over the past year; so, much work as been done. Let’s hope we’ll have this behind us within 9-12 months and housing can once again contribute to GDP growth – or at least flatten out and thus no longer weigh on GDP, which has been a 2 ½ year occurrence.
On the bright side, non-residential construction rose 0.1%, halting a two-month decline. This rise – albeit mild – was all due to the private sector, which rose 1.2% in September and is up 11% over the past year. Public-sector non-residential construction fell 1.3% for the month – up 3.7% past 12 months. Over the next couple of years we should expect a significant increase in public-sector construction if we get an Obama/Pelosi/Reid (OPR) government, which won’t be the only thing to rise if you know what I mean.
Auto Sales Plummet
October auto sales came in very weak for October, hitting a 17-year low – yet another data set that matches up well with the last traditional recession. (I say traditional because the 2001 downturn was not a traditional recession, as so many continue to call it – the last traditional recession we endured was 1990-1991 no matter what the NBER says, sorry) The comparisons to the 1990-1991 recession have come quick, as the data took a dramatic and quick turn for the worse in the past eight weeks.
Auto sales came in at 10.6 million last month, which is seasonally adjusted at an annual pace; this is down by one-third since December 2007. When adjusted for population increases, October marked the worst month in the post WWII-era, according to a GM spokesperson. And it wasn’t much better for the Asian-based automakers either as sales were down 25% from the year-ago period for both Toyota and Honda.
The Election
A large uncertainty will have been removed by tomorrow. Policy implications will develop over time, and we may not even know the results of the Presidential race for a couple of days (who knows after the last two elections) but we will know the make-up of the Senate and that is what the market is focused on right now. If everything else goes the way expected, large advances for Democrats in the House and an Obama White House, it will be important that Republicans hold 41 seats in the Senate – currently the count stands 49-49 with two independents – and probably will need 43 to be safe from the possibility of flippers.
If the Senate holds as the only blocking point to what the track records of OPR would lead one to believe will be their way of governance, stocks should rally big time. If not, it’s my personal view we may get a rally, but its sustainability is doubtful.
Have a great day!
Brent Vondera, Senior Analyst
While the indices ended pretty much flat we did see energy, basic materials and consumer discretionary shares record meaningful losses of 2.03%, 1.54% and 0.96%, respectively. The very weak manufacturing data, which we’ll discuss below, drove these sectors lower as recession concerns hit these stocks the hardest.
Health-care, financial and utility names – two of which are traditional safe-havens – were the best performers up 0.68%, 0.29% and 0.29%, respectively.
Market Activity for November 3, 2008
EconomyOn the economic front, the index that tracks nationwide manufacturing activity confirmed what the Chicago factory index illustrated on Friday; manufacturing is showing the effect of the credit freeze-up, halt in business spending and slow-down in global growth.
The Institute for Supply Management’s (ISM) manufacturing survey fell to the lowest level in 26 years, breaking through (but just barely) the bottom it hit during the 1990-1991 recession and touching a reading not seen since the 1982 contraction – although the index posted lower readings than this during that tough period back in the early 1980s.
The ISM reading came in at 38.9 for October after an already weak 43.5 in September – the sub-indices also show the economic downturn has intensified. We’ll have to wait for the next two readings to see whether this level of weakness was a transitory event due to the credit disturbance that took place last month or if this is a more lasting condition.
As stated, this is the lowest reading since the 1981-82 recession (a downturn that was significant as the Federal Reserve jacked fed funds to 15%-plus to quash double-digit inflation). ISM spent 13 straight months below 40 during that period, so by comparison, we haven’t seen anything close to that just yet.
Both the production and new orders indices within the report showed meaningful weakness – actually lower readings than the 1981-82 recession -- moving back to the 1980 contraction.
A decline of this magnitude for new orders is a pretty clear indication the November reading will be equally abysmal.
Export orders hit the lowest level on record, but this segment was just added to the ISM index in 1988 (back then ISM was the NAPM index) so we can’t see how it stacks up to the 1980 or 1981-82 contractions.
In a separate report, the Commerce Department showed construction spending fell in September; however, the 0.3% decline was better than expected. Residential construction continues to weigh on the figure, down 1.3% for the month and by 27.7% over the past year. Residential construction combines single and multi-family dwellings; separating single-family homes out, the figure is down 41.3% past 12 months! While harsh, this is simply a reality that needs to play out as the inventory-to-sales ratio of new homes remains elevated.
That said, we have seen the number of homes available for sale (which is not in relation to sales) plunge over the past year; so, much work as been done. Let’s hope we’ll have this behind us within 9-12 months and housing can once again contribute to GDP growth – or at least flatten out and thus no longer weigh on GDP, which has been a 2 ½ year occurrence.
On the bright side, non-residential construction rose 0.1%, halting a two-month decline. This rise – albeit mild – was all due to the private sector, which rose 1.2% in September and is up 11% over the past year. Public-sector non-residential construction fell 1.3% for the month – up 3.7% past 12 months. Over the next couple of years we should expect a significant increase in public-sector construction if we get an Obama/Pelosi/Reid (OPR) government, which won’t be the only thing to rise if you know what I mean.
Auto Sales Plummet
October auto sales came in very weak for October, hitting a 17-year low – yet another data set that matches up well with the last traditional recession. (I say traditional because the 2001 downturn was not a traditional recession, as so many continue to call it – the last traditional recession we endured was 1990-1991 no matter what the NBER says, sorry) The comparisons to the 1990-1991 recession have come quick, as the data took a dramatic and quick turn for the worse in the past eight weeks.
Auto sales came in at 10.6 million last month, which is seasonally adjusted at an annual pace; this is down by one-third since December 2007. When adjusted for population increases, October marked the worst month in the post WWII-era, according to a GM spokesperson. And it wasn’t much better for the Asian-based automakers either as sales were down 25% from the year-ago period for both Toyota and Honda.
The Election
A large uncertainty will have been removed by tomorrow. Policy implications will develop over time, and we may not even know the results of the Presidential race for a couple of days (who knows after the last two elections) but we will know the make-up of the Senate and that is what the market is focused on right now. If everything else goes the way expected, large advances for Democrats in the House and an Obama White House, it will be important that Republicans hold 41 seats in the Senate – currently the count stands 49-49 with two independents – and probably will need 43 to be safe from the possibility of flippers.
If the Senate holds as the only blocking point to what the track records of OPR would lead one to believe will be their way of governance, stocks should rally big time. If not, it’s my personal view we may get a rally, but its sustainability is doubtful.
Have a great day!
Brent Vondera, Senior Analyst
No comments:
Post a Comment