U.S. stocks rallied yesterday, sending the Dow above 9K for the first time since January and the S&P 500 chugged past the 950 handle as the broad market looks ready to test that Election Day mark of 1005.
I think the fact that President Obama is getting rebuffed on his desire to ram the most consequential legislation through Congress is what gave stocks a jolt yesterday. Yes, earnings reports out of AT&T, 3M and Ford were better-than-expected, but as we’ve talked about for a week now, in most cases results only look good compared to very low estimates. The housing data was helpful too but, darn I’m not trying to be a killjoy here, let’s be real the housing market’s issues will remain with the job market in the state it is in.
Delaying the vote until after the August recess increases the possibility that anything other than a very watered down version of government-run health care will be passed – many members of Congress are going to get hammered on this thing when they return to their districts as citizens are finally beginning to pay attention to just how destructive this policy would be to individual choice. This is the best news we’ve seen in quite a while and shows Americans are not willing to roll over and allow a major step toward a European-style system.
Digressing for a moment, for a second day now I’ve seen a headline commenting on how a big Wall Street name sees “a lot of bargains” among U.S. stocks. Funny how you see these stories after the market rallies 45% in a matter of 15 weeks – I don’t recall any headlines like this when the broad market traded at 10 times trailing earnings back in March; now that we’re at 16 times, the “stocks are a screaming buy” remarks begin to fly. It really is amusing to watch.
Basic material shares led the rally and have been on their horse over the last eight sessions, up nearly 18%. The broad market is up 11% over the same period.
Consumer staple and technology share were the laggards, although still up by 1.64% and 1.97%, respectively.
Volume was good relative to recent days, right in line with the three-month average of 1.3 billion shares on the Big Board. Eight stocks rose for every one that fell on the NYSE Composite.
Market Activity for July 23, 2009
The Dollar
It’s not looking good for old green, the USD only rallies when the safety trade rolls – needless to say a horrible sign for its direction looking out over the next year.
As a result, commodity prices have momentum again, illustrated by the CRB Index back above 250 – I’m watching for the 270-275 range to offer a break out scenario in commodity prices. But you don’t really have to watch the entire basket of commodities, only need to watch Dr. Copper – smarter than any PhD when it comes to the early detection of inflationary pressures.
Initial Jobless Claims
Initial jobless claims rose 30,000 in the week ended July 18, but remained below the 600K level, coming in at 554,000. The four-week average, a less volatile figure, fell 19,000 to 566,000.
Continuing claims fell 88,000 to 6.225 million in the week ended July 11 (one-week lag). This is on top of the massive record decline of 591,000 in the week ended July 4 that drove claims off of the all-time high of 6.904 million. My view is that there is either a statistical issue here that is driving the figure lower or the expiration of benefits is playing the role, maybe both. One doesn’t need to be a skeptic to view this decline as strange, if it were a mild move lower I could believe some real improvement was in the making, but a decline of this magnitude does not at all jibe with the realities within the labor market.
There are two ways to confirm this unprecedented decline in continuing claims is actually signaling the labor market is healing in a significant manner.
First, Congress is sending money to states so that they can extend jobless benefits to 59 weeks from 26 weeks. If the decline in continuing claims is for real, then they will keep falling even as the duration of benefits payments is extended – they will at the least flatten out. If they resume the move higher, we’ll know the latest decline is a function of benefits expiring.
Second, the next employment report (due out in a couple of weeks) will show a huge decline in the duration of unemployment. To the contrary, that figure rose at the largest degree since the recession began in the last jobs report, rising from 22.5 weeks to 24.5 weeks. If we don’t see a reversal in the duration number, that will be another sign something is awry with the continuing claims move lower.
Existing Home Sales
The National Association of Realtors reported that home resales rose 3.6% in June for a third-straight month (up 2.4% for single-family only), induced by the $8,000 tax credit, lower borrowing costs in the back-half of the month and foreclosure-driven price declines in certain regions.
Total existing home sales (condos, co-ops and single-fam.) rose to 4.89 million at an annual rate, the highest since October – beating the estimate of 4.84 million. Single-family homes rose to 4.32 million, still very depressed but up nicely from the 12-year lows we were hitting three months back.
The median price for existing single-family homes rose 4% to 181,800 in June, down 15.0% from the year-ago period.
The supply of homes (in months worth of supply at the current sales pace) made additional progress to 8.9 months from 9.1 in May.
June is traditionally one of the strongest months for home sales, so the gain is not a surprise (especially after the latest pending homes sales data). Stocks certainly got a lift from the news, and these rallies are enjoyable, but people shouldn’t get too excited, there are many fundamentals that will weigh on the housing market over the foreseeable future --- the fragile labor market conditions being the preponderant element. Even if rates remain in this low range of 5.00%-5.35%, the level of joblessness and the concern of losing one’s job will be pulling on demand. If rates tick up, which is a reasonable assumption once GDP begins to post positive readings, home-sale activity is likely to stagnate.
Have a great weekend!
Brent Vondera, Senior Analyst
I think the fact that President Obama is getting rebuffed on his desire to ram the most consequential legislation through Congress is what gave stocks a jolt yesterday. Yes, earnings reports out of AT&T, 3M and Ford were better-than-expected, but as we’ve talked about for a week now, in most cases results only look good compared to very low estimates. The housing data was helpful too but, darn I’m not trying to be a killjoy here, let’s be real the housing market’s issues will remain with the job market in the state it is in.
Delaying the vote until after the August recess increases the possibility that anything other than a very watered down version of government-run health care will be passed – many members of Congress are going to get hammered on this thing when they return to their districts as citizens are finally beginning to pay attention to just how destructive this policy would be to individual choice. This is the best news we’ve seen in quite a while and shows Americans are not willing to roll over and allow a major step toward a European-style system.
Digressing for a moment, for a second day now I’ve seen a headline commenting on how a big Wall Street name sees “a lot of bargains” among U.S. stocks. Funny how you see these stories after the market rallies 45% in a matter of 15 weeks – I don’t recall any headlines like this when the broad market traded at 10 times trailing earnings back in March; now that we’re at 16 times, the “stocks are a screaming buy” remarks begin to fly. It really is amusing to watch.
Basic material shares led the rally and have been on their horse over the last eight sessions, up nearly 18%. The broad market is up 11% over the same period.
Consumer staple and technology share were the laggards, although still up by 1.64% and 1.97%, respectively.
Volume was good relative to recent days, right in line with the three-month average of 1.3 billion shares on the Big Board. Eight stocks rose for every one that fell on the NYSE Composite.
Market Activity for July 23, 2009
The DollarIt’s not looking good for old green, the USD only rallies when the safety trade rolls – needless to say a horrible sign for its direction looking out over the next year.
As a result, commodity prices have momentum again, illustrated by the CRB Index back above 250 – I’m watching for the 270-275 range to offer a break out scenario in commodity prices. But you don’t really have to watch the entire basket of commodities, only need to watch Dr. Copper – smarter than any PhD when it comes to the early detection of inflationary pressures.Initial Jobless Claims
Initial jobless claims rose 30,000 in the week ended July 18, but remained below the 600K level, coming in at 554,000. The four-week average, a less volatile figure, fell 19,000 to 566,000.
Continuing claims fell 88,000 to 6.225 million in the week ended July 11 (one-week lag). This is on top of the massive record decline of 591,000 in the week ended July 4 that drove claims off of the all-time high of 6.904 million. My view is that there is either a statistical issue here that is driving the figure lower or the expiration of benefits is playing the role, maybe both. One doesn’t need to be a skeptic to view this decline as strange, if it were a mild move lower I could believe some real improvement was in the making, but a decline of this magnitude does not at all jibe with the realities within the labor market.There are two ways to confirm this unprecedented decline in continuing claims is actually signaling the labor market is healing in a significant manner.First, Congress is sending money to states so that they can extend jobless benefits to 59 weeks from 26 weeks. If the decline in continuing claims is for real, then they will keep falling even as the duration of benefits payments is extended – they will at the least flatten out. If they resume the move higher, we’ll know the latest decline is a function of benefits expiring.
Second, the next employment report (due out in a couple of weeks) will show a huge decline in the duration of unemployment. To the contrary, that figure rose at the largest degree since the recession began in the last jobs report, rising from 22.5 weeks to 24.5 weeks. If we don’t see a reversal in the duration number, that will be another sign something is awry with the continuing claims move lower.
Existing Home Sales
The National Association of Realtors reported that home resales rose 3.6% in June for a third-straight month (up 2.4% for single-family only), induced by the $8,000 tax credit, lower borrowing costs in the back-half of the month and foreclosure-driven price declines in certain regions.
Total existing home sales (condos, co-ops and single-fam.) rose to 4.89 million at an annual rate, the highest since October – beating the estimate of 4.84 million. Single-family homes rose to 4.32 million, still very depressed but up nicely from the 12-year lows we were hitting three months back.
The median price for existing single-family homes rose 4% to 181,800 in June, down 15.0% from the year-ago period.The supply of homes (in months worth of supply at the current sales pace) made additional progress to 8.9 months from 9.1 in May.June is traditionally one of the strongest months for home sales, so the gain is not a surprise (especially after the latest pending homes sales data). Stocks certainly got a lift from the news, and these rallies are enjoyable, but people shouldn’t get too excited, there are many fundamentals that will weigh on the housing market over the foreseeable future --- the fragile labor market conditions being the preponderant element. Even if rates remain in this low range of 5.00%-5.35%, the level of joblessness and the concern of losing one’s job will be pulling on demand. If rates tick up, which is a reasonable assumption once GDP begins to post positive readings, home-sale activity is likely to stagnate.Have a great weekend!
Brent Vondera, Senior Analyst
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