Consumer discretionary and tech shares led the indices higher, with industrials not far behind. Even the financial sector managed a market-matching gain despite comments from JP Morgan CEO Dimon that cautioned losses on commercial real estate lurk over the horizon.
We’re moving to the top end of the range, basically 930 on the S&P 500, and the current trading euphoria seems to be enough to get us to 900, just 4% from that level right now. We’ve got existing home sales and durable goods data to get through next week, which should test this latest spate of optimism. We’re range bound though, there is not much denying that so we shouldn’t get too carried away – just thankful the we’re moving in a helpful direction.
Not all of the economic data was bad yesterday, as we’ll get to below. The housing figures were disappointing, and while continuing jobless claims show the labor market is fragile, initial claims fell substantially. The latest manufacturing survey showed improved, but remained pretty deep in contraction mode and the hour worked data didn’t exactly illustrate factories are ready to boost production in the very near future.
Market Activity for April 16, 2009
Earnings Season
First-quarter profits are certainly down, but are managing numbers that are better than most expected thus far. It’s very early, just 10% of S&P 500 members have reported, but overall operating profits are lower by just 15%. Same is true for the ex-financial figure. These results will get worse, but if we manage to remain better than a 30% decline by the time the season comes to a close roughly a month from now, it will be viewed as a moral victory. Our view is we’ll see some nasty numbers out of the industrial and tech sectors, so I think the short-term pessimism regarding overall results is probably justified.
Housing Starts
The Commerce Department reported that U.S. builders broke ground on fewer homes in March and permits fell to a new low as the industry continues to keep absolute supply to an extreme minimum (not to be confused with supply as a percentage of sales, which is high) in the face of poor sales and rising foreclosures.
Housing starts fell 10.8% in March to an annual rate of 510,000 units from 572,000 in February.
Building permits, a sign of future construction, fell 9% to 513,000 after a brief blip higher in February.
This reading could have been worse, but we really needed to see something more positive. The market got all excited last month when the February reading jumped 20% from the all-time low hit in January; however; as we mentioned at the time, the February increase appeared to be more weather-related than anything – very poor weather across the country in January put additional brakes on construction and the better-than-normal conditions in February assisted the snap back from that nadir.
The fact that the March reading came in just 4.5% above that January low (and still 8.6% below the December reading, just to give you some color) shows the predictions that housing had turned the corner were premature. (I will note, this report is made up of two segments – single-family and multi-family units , such as apartments, condos etc. Single-family housing starts have been flat for three months, the relative volatility over the past couple of reports has come from multi-family units. Thus the single-family data does indicate a bottom has been made. This, however, is quite different from a rebound. We’ll have to see sales shoot higher before that occurs.)
That said, we’re at levels that are well below the household creation rate so when the bounce occurs, it will be substantial. Nevertheless, it may be a while before this occurs as the very weak job market is keeping sales soft even as mortgage rates are at the lowest levels since the 1940s.
Jobless Claims
The Labor Department reported initial jobless claims fell for a second-straight week, falling 53,000 to 610,000 in the week ended April 11 – better than expected. While the previous week’s reading was revised higher, this may be the beginning of a nice trend toward the 500K handle – a level that we’ve been saying needs to be hit to show some meaningful labor market improvement is imminent, and we’re making progress in that move.
The less volatile four-week average fell 8,000 to 650,000.
Unfortunately, the continuing claims data continues to show that the labor market remains really fragile. Continuing jobless claims rose for a 13th consecutive week to make a new record high, up 172,000 (one of the largest weekly moves we’ve seen) to 6.022 million. Obviously, this illustrates that it is taking the unemployed longer to find a job. The fact that the time one can collect jobless benefits has been extended plays a role as well.
The insured unemployment rate (the jobless rate for people eligible for benefits), which closely tracks the direction of the overall jobless rate, rose to 4.5% from 4.4% in the prior week.
Philadelphia Fed Index
The Philadelphia Federal Reserve Bank reported their manufacturing activity index (known as the Philly Fed) improved in April to -24.4 from 35.0 in March, which follows the improvement seen in the New York manufacturing survey on Wednesday. However, the improvement was not as convincing as the New York reading (known as Empire Manufacturing) was as the sub-indices of Philly failed to show the same broad-based improvement.
The new orders index improved nicely from the very depressed level hit in March – up 15 points.
However, the shipments index moved to an all-time low.
Also, the workweek fell back to the -40 handle – one would expect this number to improve if respondents to the survey planned sustained production increases.
The inventory gauge (no chart for this one) rose to -40.2 from the all-time low of -55.6 hit in March. Since we came off of that very low level it may be indicating firms believed the level of stockpiles were too low and thus ramped up production a bit. Does this mean inventory liquidation has run its course? It’s too early to tell, especially because of that decline in the workweek.
We’ll have to wait for more conclusive evidence from the Chicago manufacturing report and the nationwide ISM reading, both if which are out in about two weeks.
Have a great day!
Brent Vondera, Senior Analyst
No comments:
Post a Comment