Daily Insight

U.S. stocks bounced between gain and loss on several occasions yesterday, but unlike Monday when a late session move higher delivered the broad market to the upside a move lower in the final minutes ended a six-day winning streak. Overall, the beginning of this holiday-shortened week has turned out as uneventful as maybe it was expected to as the last two sessions canceled one another out.

The day’s economic data was really not enough to push stocks higher. The latest housing report showed prices rise month-over-month in October, but it was a negligible gain and too many cities continued to show no durable recovery in prices is yet upon us. The latest consumer confidence reading showed a nice improvement in households’ expectation of the future, but even that reading remains quite depressed and if jobs growth fails to get rolling in substantial fashion a few months down the road, even expectations may get smacked down again. The present conditions index of the report made a new cycle low.

Really the only excitement yesterday was the ubiquitous internet photos of the “Great Balls of Fire” underwear, the clandestine means for the failed explosive device via al Qaeda’s latest human mule.

Seven of the 10 major S&P 500 industry groups closed lower on the session, led by energy and financial shares. The three sectors that gained ground were led by consumer discretionary and industrial shares – consumer-staples being the third of those sectors ending in the black.

The $42 billion five-year Treasury auction went well as the yield was 1.4 basis points lower than the when-issued were trading prior to the auction. The bid-to-cover (gauge of demand) was 2.59, lower than the previous two auctions, but in line with the four-auction average. The indirect bid (gauge of foreign buying) was the worst aspect of the auction, coming in at 44%, down from 60.9% in November and below the 54.2% of the past four auctions. Today’s seven-year auction will be the test for the week.

Market Activity for December 29, 2009
S&P CaseShiller Home Price Index

The CaseShiller HPI (which tracks home prices for the 20-largest metro areas) extended its streak to five months as the measure showed October prices advance 0.37% from the prior month. From a year-over-year perspective, the improvement extended for a seventh month – relative to October 2008 prices were off by 7.28%, which follows a 9.27% decline in September (from the year-ago period).

Nine of the 20 cities tracked registered price declines for October, the same number as last month. Tampa led the declines, where prices were down 1.19% for the month, followed by Chicago (down 0.98%), Miami (down 0.48%), Cleveland (down 0.40%), Las Vegas (off by 0.28% and has never shown an increase since the market collapsed); Boston, NY, Atlanta and Dallas also registered price declines.

For the 11 cities that gained ground, San Francisco led the way (up 1.73%), followed by Detroit (up 1.23%), San Diego (up 1.11%), LA (up 0.69%). Seattle, Portland, Denver, Minneapolis and Washington DC and Charlotte rounded out the positive contributors.

Since hitting its cycle low in May, the CaseShiller HPI has rebounded 3.4%. The current level was first hit in September 2003. Peak-to-date, CaseShiller has home prices down 29.55% -- April 2006 was when prices peaked, according to this index.


Consumer Confidence

The Conference Board’s consumer confidence reading for December improved to 52.9 from an upwardly revised 50.6 (previously reported at 49.5) for November – basically in line with the expectation of 53.0. For perspective, the long-term average is 94.1. The reading averaged 103.4 in 2007 and 60.5 in 2008.

The increase was driven by a nice move within the expectations index (consumer’s view of things six months out), which rose to 75.6 from 70.3. That’s the highest since the recession officially began in December 2007. The cycle low, which is also the all-time low, of 27.3 was touched in February.

The present situation index weighed on the headline reading, slipping to 18.8 (a new cycle low, the all-time low of 15.8 was hit in December 1982) from 21.2 in November. With the present number falling, we’ll have to see a marked pick up in economic activity, and thus job growth, or that expectations number is going to get hammered again.

As we explain each month, the most important reading is the jobs “plentiful” less jobs “hard to get” reading. This is the confidence index’s best indication of future consumer activity trends. The measure made a new cycle low of -46.6 in November, but improved ever-so-slightly in December to -45.7. The all-time low is -58.7, hit in December 1982.

The share of respondents stating jobs are “plentiful” fell to 2.9 from 3.1 in the previous month, but those stating jobs are “hard to get” improved to 48.5 from 49.2, more than offsetting the decline in the plentiful reading.

The readings on plans to buy a car or a home six months out continued to decline. Plans to buy a car fell to 3.8 from 4.5 and the plans to buy a home hit a new 27-year low, falling to 1.9 from 2.1.

Subsidize It

The Treasury Department will throw another $3.5 billion GMAC’s way so that the financial-services firm can keep their mortgage arm, ResCap, out of bankruptcy as loan losses continue to mount. This is on top of the $12.5 billion Treasury has already thrown down this rat hole. We likely haven’t seen the extent of this bailout story as GMAC’s loan portfolio will record additional losses down the road – what’s going to happen when home prices slip just another 5% over the next 6-12 months? With the way that banks have delayed the foreclosure process, there’s little doubt these distressed properties will add significantly to home supply.

The government will hand the 90-year old lender all the money they need to cover losses as the auto market can’t afford GMAC going down, or even slow their financing activity.


Have a great day!


Brent Vondera, Senior Analyst