Daily Insight: Apps, Durable Goods, New Homes and Shoot to Kill

After spending most of the day on the plus side U.S. stocks failed to hold positive territory, falling below the cut line in the final 40 minutes of trading. You can’t say it was a mirror image of Tuesday’s session, when stocks erased a 3% plunge to close mildly positive, but it was close. At its intraday peak, the S&P 500 was higher by 1.54%, but momentum began to fade at about 1:00 CDT and completely fell apart as we headed for the close.

There was a report from the Financial Times, out about the time that stocks went negative, stating that China may begin reducing their positions in European government bonds. Obviously, and it shows just how skittish this market is for it to react this way, the Chinese are not going to announce such a strategy to the world; they hold $630 billion in euro-zone bonds, they’re not going to want to see those positions summarily crushed. But from a wider perspective, such action would put immense pressure on the European banking system since they have significant exposure to these bonds. Actually, the exposure is more likely massive, but I don’t have the number in front of me so I’ll call it significant for now.

The EU banking system is in trouble anyway you look at it. The central bank and various euro-zone governments can delay the damage, but they can’t ultimately erase what only good policy and time can cure.

The day’s economic reports were mixed with the April durable goods report beating expectations on the headline number, but missed via the more reliable ex-transportation reading. New home sales for April jumped, destroying the consensus estimate, but as the prior three weeks of mortgage apps have shown, the tax credit simply stole sales from the future…more on these data below.

Nine of the 10 major industry groups closed down for the session, industrials being the only survivor – the S&P 500 index that tracks these shares was up as much as 2.5%, but ended just 0.25% higher . Telecom and tech led to the downside, both were also positive earlier in the session.
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Brent Vondera, Senior Analyst
www.acrinv.com