Strangely, consumer discretionary shares were the best performing industry, offering the market support. The confidence reading, as we’ll get to below, did not offer a good vibe regarding the direction of consumer activity over the near-term, and frankly the next year, as the jobless rates will remain elevated.
The dollar got decent press yesterday as the Dollar Index posted its first back-to-back rise since early August. It appears some believe recent trends have changed; maybe the dollar has more going for it than just the safety trade. Just maybe stocks and the dollar can rise in tandem, as is usually the case.
Don’t bet on it though. The greenback was supported by lip service, talk coming from the heads of the European Central Bank and World Bank. Just words, and not even from members of our own Fed. No, nothing has changed; the dollar’s rise was only on the hope of supportive policy. Sorry, I wish the dollar would find a little strength, and most importantly stability, but I’m not interested in wishful thinking – it will only bring one trouble in this environment.
Decliners just barely outnumbered those that advanced on the NYSE. Volume was weak again, with just 1.1 billion shares traded on the Big Board, 15% below the six-month average.
Market Activity for September 29, 2009
S&P Case/Shiller Home Price IndexThe Case/Shiller Home Price Index, not the most geographically diverse but certainly the most watched housing market survey, showed home prices in the 20 U.S. metro area tracked rose 1.61% in July. This marks the third-straight month of gains, following 33 months of decline. The index remains down 13.3% from the year-ago period – it was expected to decline 14.2%.
L.A., San Diego and San Francisco accounted for 40% of the July price increase – these three cities make up 27.4% of the index. California offers a tax credit for new home purchases that is in addition to the federal tax credit, which has definitely helped sales in the state.
Eighteen of the 20 cities tracked registered an increase in prices, the same as June. Las Vegas and Phoenix were the only cities to show a monthly decline for July, in June it was Vegas and Detroit.
On an annualized basis, home prices have jumped 15.21% over the past three months – this data is not seasonally adjusted so this traditional peak period for home buying has influenced the sales data, and thus prices within Case/Shiller. For perspective, it would take a 43% surge in home prices to return to the peak hit in Case/Shiller, which occurred in July 2006
Foreclosure-driven price declines, a new homebuyer’s tax credit of $8,000 and fed-induced rock-bottom interest rates have helped sales, which have allowed overall housing-market prices to rise from the cycle-low hit in January (the Case/Shiller cycle low was hit in April). Problem is it has front-loaded buying, so the market will have to deal with a decline in sales and a little more pricing pressure in the months ahead. Foreclosure rates are likely to pick up gain, as all state moratoriums on the foreclosure process have expired, and this will put pressure on prices again also.
Below is the individual city break down:
Consumer Confidence
The Conference Board’s consumer confidence reading unexpectedly declined in September, coming in at 53.1 after an upwardly revised 54.5 for August. This missed the expectation for a rise to 57.0.
The fact that we can’t get above even the lowly level of 60 (a level where the index had settled during previous recessions) is quite telling. The drag the largest component of GDP will put on economic growth does not seem to be factored into the market right now.
The present situation index fell to 22.7 from 25.4 – the cycle low is 21.9 touched in March and the all-time low is 15.8, touched in December 1982.
The expectations reading (view of economic prospects six month out) came in at 73.3, down slightly from August’s 73.8 – the cycle low is also the all-time low, 27.3 hit in February.
The most important aspect of this report, in my opinion, is the jobs “plentiful” less jobs “hard to get” figure; this is likely the best indication of future consumer activity trends. This reading fell to -43.6 from -40.0 in August.The share of consumers stating jobs are plentiful fell to 3.4% from 4.3% and those stating jobs are hard to get increased to 47% from 44.3%
The cycle low is -44.1, which was hit in March. The all-time low for this reading is -58.7, recorded in November 1982 when the unemployment rate hit 10.8% -- the post-WWII peak. We are going to test that number sometime over the next six months.
The reasonable probability that aggregate demand will remain weak (as mentioned yesterday, today’s very aggressive corporate cost-cutting, mostly via payroll slashing, is tomorrow’s lack of final demand) does not seem to be factored into the equity-market valuation equation right now. Rather, particularly regarding the latest leg of this rally, the attraction to stocks seems to more a function of a run for money while the gettin’ is good type of behavior.If policymakers’ belief in an economic “escape velocity” doesn’t occur – that is, a sufficiently high and sustained level of growth that enables the economy to shed its supportive crutches and keep on running (think of a young Forrest Gump) even as tax and interest rates rise and the government regulates… well, let me say: I wish the market and policymakers luck with that fantasy http://www.youtube.com/watch?v=7_nwbTeIN4Y.
If history is any guide, for policymakers who find it fancy to borrow phrases from Newton, it seems his laws of motion (specifically the third law, “to every action there is always an equal and opposite reaction”) would be more apropos.
Have a great day!
Brent Vondera, Senior Analyst
1 comment:
Very nice... can you bring us a recap from over the month? It's good to analyze the general market in these 30 days that passed!
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