U.S. stocks ran into a bit of trouble yesterday as the latest housing figures gave the heretofore euphoric equity-market investor a little pause. The Dow average held up the best, while the NASDAQ took the biggest hit of the three most widely known indices.
Existing home sales fell in August, which probably took even the skeptical by surprise. This event offset a jobless claims reading that showed pretty nice improvement, even if initial claims remain at peak levels relative to three of the past five recessions and continuing claims sit in the nosebleeds.
The housing number may have been driven by nothing more than a longer process to close loans, but it likely reminded people that the economic state of things remains precarious. The Federal Reserve’s decision to begin to slow a couple of its liquidity programs (which are providing funds to the market on the cheap) next month probably had an effect on trading as well. Still, I wouldn’t make much of the session’s decline as a 1% move on the S&P 500 (following Wednesday’s similar drop) is hardly noticeable after a 60% sprint from the March 9 low.
Basic material, financial and industrial shares led the decline. A downtick in commodity prices led the sell-off in material shares, and to a lesser extent energy names. An important gauge of commodity prices fell 2%, led by copper, oil and gold. Crude has moved back to the mid-$60s from $71.55 per barrel just two days back.
Another huge Treasury auction went off without a hitch yet again – hey, maybe we can continue to issue massive amounts of debt, an additional $1.5 trillion per year, without consequence. This time it was $29 billion of 7-yr notes met by strong demand – completing a week of $118 billion issuance.
Market Activity for September 24, 2009
Initial Jobless Claims
The Labor Department reported that initial jobless claims fell 21,000 to 530,000 in the week ended September 19 – the reading was expected to print 550K. This is the lowest level in two months (and when you exclude the distortions in July is the lowest level since January). The prior week’s reading was revised higher by 6,000 to 551,000, so this latest reading is the first move below the 550K level in eight months, again excluding a one-week blip below this level in July.
The four-week average of initial claims fell 11,000 to 553,500.
Continuing claims fell too, down 123,000 to 6.138 million. That’s a nice move that nearly erases the damage done from the prior week’s 158K increase.
Emergency Unemployment Compensation (EUC) jumped 82,364 to 3.223 million -- new high. This is another indication that the decline in continuing claims is not due to job hiring but from the expiration of benefits. (Those who have extinguished their normal 26 weeks of benefits and then their 13 weeks of extended benefits move over to EUC (EUC gives them another 20 weeks).
Overall, initial and continuing claims combined, the data suggests firms have slowed the pace of firings, but are unwilling to add to payrolls.
Existing Home Sales
The National Association of Realtors (NAR) reported that existing home sales unexpectedly fell in August, down 2.7% to 5.1 million units at an annual rate. The market was expecting sales to rise 2.1% to 5.35 million units, or 250,000 units more than we got.
This marks the first decline in four months and surprised even those, such as moi, expecting home sales to roll over again in a couple of months. And the decline was not due to the volatile multi-family component of the data, but resulted from a 2.8% decline in single-family unit sales.
Single-family sales came in at 4.48 million units, down from 4.61 million in July (again, this is at an annual rate) – still meaningfully above the cycle low of 4.05 million touched in January, but we’re not supposed to see a decline with full-blown housing stimulus still in effect and an economy that is supposed to be improving.
We shall see if this decline was due to a longer loan-closing process or the upward trend in home sales is getting exhausted as even massive stimulus (fed-induced rock-bottom interest rates, the tax credit, Fannie/Freddie accounting for 80% of originations), along with foreclosure-driven price declines, are no longer enough to offset a very weak labor market.
NAR stated 30% of buyers were first timers (encouraged by the tax credit) and 31% of sales were of distressed properties. The median price fell 2.1% for the month and is down 12.5% from the year-ago period.
The bright spot in the data was the continued decline in the inventory/sales ratio of single-family units, falling to 8.2 months worth of supply from 8.5 in July. The total number, which includes multi-family units, fell to 8.5 months worth from 9.3 in July.
One has to be aware, though, that foreclosures are not likely to slow, particularly since state moratoriums (which have now expired) have only delayed this process. This will work against the supply figures that are currently moving in a beneficial direction.
The homes available for sale figure, which is not adjusted for the pace of sales, remains elevated from a historical perspective but has come down from withering heights.
Have a great weekend!
Brent Vondera, Senior Analyst
Existing home sales fell in August, which probably took even the skeptical by surprise. This event offset a jobless claims reading that showed pretty nice improvement, even if initial claims remain at peak levels relative to three of the past five recessions and continuing claims sit in the nosebleeds.
The housing number may have been driven by nothing more than a longer process to close loans, but it likely reminded people that the economic state of things remains precarious. The Federal Reserve’s decision to begin to slow a couple of its liquidity programs (which are providing funds to the market on the cheap) next month probably had an effect on trading as well. Still, I wouldn’t make much of the session’s decline as a 1% move on the S&P 500 (following Wednesday’s similar drop) is hardly noticeable after a 60% sprint from the March 9 low.
Basic material, financial and industrial shares led the decline. A downtick in commodity prices led the sell-off in material shares, and to a lesser extent energy names. An important gauge of commodity prices fell 2%, led by copper, oil and gold. Crude has moved back to the mid-$60s from $71.55 per barrel just two days back.
Another huge Treasury auction went off without a hitch yet again – hey, maybe we can continue to issue massive amounts of debt, an additional $1.5 trillion per year, without consequence. This time it was $29 billion of 7-yr notes met by strong demand – completing a week of $118 billion issuance.
Market Activity for September 24, 2009
Initial Jobless ClaimsThe Labor Department reported that initial jobless claims fell 21,000 to 530,000 in the week ended September 19 – the reading was expected to print 550K. This is the lowest level in two months (and when you exclude the distortions in July is the lowest level since January). The prior week’s reading was revised higher by 6,000 to 551,000, so this latest reading is the first move below the 550K level in eight months, again excluding a one-week blip below this level in July.
The four-week average of initial claims fell 11,000 to 553,500.
Continuing claims fell too, down 123,000 to 6.138 million. That’s a nice move that nearly erases the damage done from the prior week’s 158K increase.Emergency Unemployment Compensation (EUC) jumped 82,364 to 3.223 million -- new high. This is another indication that the decline in continuing claims is not due to job hiring but from the expiration of benefits. (Those who have extinguished their normal 26 weeks of benefits and then their 13 weeks of extended benefits move over to EUC (EUC gives them another 20 weeks).Overall, initial and continuing claims combined, the data suggests firms have slowed the pace of firings, but are unwilling to add to payrolls.
Existing Home Sales
The National Association of Realtors (NAR) reported that existing home sales unexpectedly fell in August, down 2.7% to 5.1 million units at an annual rate. The market was expecting sales to rise 2.1% to 5.35 million units, or 250,000 units more than we got.
This marks the first decline in four months and surprised even those, such as moi, expecting home sales to roll over again in a couple of months. And the decline was not due to the volatile multi-family component of the data, but resulted from a 2.8% decline in single-family unit sales.
Single-family sales came in at 4.48 million units, down from 4.61 million in July (again, this is at an annual rate) – still meaningfully above the cycle low of 4.05 million touched in January, but we’re not supposed to see a decline with full-blown housing stimulus still in effect and an economy that is supposed to be improving.
We shall see if this decline was due to a longer loan-closing process or the upward trend in home sales is getting exhausted as even massive stimulus (fed-induced rock-bottom interest rates, the tax credit, Fannie/Freddie accounting for 80% of originations), along with foreclosure-driven price declines, are no longer enough to offset a very weak labor market.
NAR stated 30% of buyers were first timers (encouraged by the tax credit) and 31% of sales were of distressed properties. The median price fell 2.1% for the month and is down 12.5% from the year-ago period.
The bright spot in the data was the continued decline in the inventory/sales ratio of single-family units, falling to 8.2 months worth of supply from 8.5 in July. The total number, which includes multi-family units, fell to 8.5 months worth from 9.3 in July.
One has to be aware, though, that foreclosures are not likely to slow, particularly since state moratoriums (which have now expired) have only delayed this process. This will work against the supply figures that are currently moving in a beneficial direction.
The homes available for sale figure, which is not adjusted for the pace of sales, remains elevated from a historical perspective but has come down from withering heights.Have a great weekend!
Brent Vondera, Senior Analyst
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