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A Flat Market
Posted: 6/30/09 1:15 PM ET
Rally Stalls as Confidence Falls
The market is slumping as the quarter comes to a close. The
main culprit is an unexpected drop in consumer confidence,
ending a two-month winning streak in that index. Other economic
data today was positive but has failed to offset the negative
consumer reading as home prices fell at an 18% annualized rate
in April – which was better than had been expected – and
manufacturing activity in the Midwest improved in June.
Treasuries are lower after the release of this data. Meanwhile
in equity news, Ford raised its quarterly production forecast,
H&R Block and Apollo Group both beat earnings expectations,
General Mills lifted its quarterly dividend, Abbot Laboratories
will have to pay a hefty patent infringement fine, Broadcom
sweetened its offer to acquire Emulex Corp, and Adobe Systems
announced plant closings. Overseas, stocks in Europe were lower.
At 12:52 p.m. ET, the Dow Jones Industrial Average is down 1.3%,
the S&P 500 Index is off 1.2%, and the Nasdaq Composite is
down 0.7%. Crude oil is $1.85 lower at $69.64 per barrel,
wholesale gasoline is down $0.04 at $1.89 per gallon, and gold
is $8.35 lower at $929.60 per ounce.
I
Calm Before The Storm?
The effect from the Russell Index rebalancing spilled over
to today's market as stocks were a little jumpy in the first
hour of trading. After that, the water became placid. Stocks
were mostly higher and traded in a very tight range for the
rest of the day. Volume was holiday light while VIX dropped
to a nine month low at 25.35. When the closing bell rang,
the DJIA was up 90.99 points (+1.08%) at 8529.38. The
S&P 500 was up 8.33 points (+0.91%) at 927.23 while the
NASDAQ underperformed slightly, finishing the day with a
5.84 point gain (+0.32%) at 1844.06.
The internals were mostly positive. Advancers led decliners
by an 18 to 11 ratio on the NYSE but lagged by an 11 to 14
ratio on the NASDAQ. About two thirds of the volume was on
the upside on the NYSE while over 60% of the volume was up
on the NASDAQ. All ten major sectors gained for the day.
Light volume coupled with a holiday-shortened week makes it
difficult to gauge this week's market movements. The general
mood of the market is bullish as fund managers try to close
the month/quarter and first half of the year on an up note.
But there are signs that sentiment may have become a little
too bullish. The CBOE index put/call ratio is now under 1.00
two days in a row. In addition, while a declining VIX is
positive for prices, the VIX is at a nine month low and a
bounce is likely to be in store. Increasing volatility is a
negative for stock prices.
Both the S&P 500 and NASDAQ are now in a short term
overbought condition. The DJIA is back above its 200 day
moving average and another day of gains will put it in short
term overbought condition, also. All these factors point to
some kind of pullback in early July.
by Yin Lin, CFA
June 30, 2009
Consumer Confidence Slips As Home Price Decline
Moderates
And Regionals Rise
The Consumer Confidence Index slipped 5.5 points
to 49.3 in June, partial payback after two strong months of gains.
Economists expected a rise of 1.1
points to 56.0. Both the present situation and expectations
components fell similarly. Additionally,
the expectations component for May was revised down by 0.8 points,
while the present situation was revised up
by that amount. Confidence dropped in all demographic categories.
Seven of the nine regions suffered declines.
Despite this month’s setback, the economy is
expected to grow over the next three quarters .
Buying plans retreated. Plans
to buy a vehicle in the next six months fell more than a point
(more than is typical) to a low
4.6%. Plans to buy a home ticked down to 2.7%, in line with
historical tendencies for June. Plans to buy a major appliance
shed 2.7 points, a little more than normal. Vacation plans,
however, rebounded 2.4 points to 37.0%. For
the first time since September 2007, more than half of respondents
expect interest rates to rise.
Home Price Declines Moderate
According to S&P/Case-Shiller, existing
single-family home prices fell about 1% in April, the smallest
decline since at least
last June, with eight metro
areas registering monthly price increases. On a y/y basis, the
10-City and 20-City Composite
Indexes each fell 18%, both better than the record lows seen in
January. Thirteen of the 20 metro areas
recorded improvement in their annual price returns in April. The
Composite Indexes are off more than 30% from their
May 2006 peaks, having fallen to their lowest levels since
mid-2003. Foreclosure moratoriums may have helped stabilize
prices some in April, but that could reverse in the second half of
the year.
Regionals Improve
Regional reports out this morning, as well as
others over the past couple of weeks, indicate business activity
deteriorated at a slower pace
across the country in June. Economists expect the national ISM
Index to rise 2.1 points
to 44.9, although we think it could exceed 46.
Chicago area activity rebounded. The
Chicago Business Barometer rose 5.0 points to 39.9, recouping
nearly all of May’s loss and
eclipsing expectations for a reading of 39.0. The improvement was
broad-based, suggesting a slower rate of
decline in activity. Notably, the production and order backlogs
indexes rose to their highest level since last fall. Buying
policy, however, was mixed, with lead
times for MRO supplies and capital equipment lengthening, while
production materials dropped to
its shortest duration since December 2007, at the start of the
recession. Prices fell at a slower rate.
Cincinnati area activity also declined at a slower
pace. The PMI rose 3.6
points to 42.1, its highest level since October.
Other indexes were mixed. The composite price index rose 22.7
points to 8.0, indicating a broad-based increase
in average prices for the first time in seven months.
In Milwaukee, manufacturing activity was flat, as
the PMI rose seven points to a neutral 50 reading, the best since
February 2008.
Individual indexes were mixed. Notably, production jumped 15
points, the most since August 1987, to 53,
indicating a modest pickup in output. Price pressures turned
positive for the first time since September.
But New York City business activity contracted
once again. The current
business conditions index, which largely tracks
the service industry, dropped 16.5 points to 44.8, giving up over
half of the gain seen in May. Working capital shortages
remained a concern. Despite the drop in activity, expectations
improved modestly. Price pressures have begun
to move off their lows.
Worker Confidence Continues to Improve
The Rasmussen Employment Index rose 2.5% to 68.4
in June . This was the
fourth consecutive monthly increase to its
highest level since October. From a year ago, the index is off
13.0%, the least since September.
Weekly Chain-Store Sales Mixed
Chain-store sales were mixed in the latest week,
helped by seasonally hot weather and 4th of July sales promotions.
The ICSC/Goldman Sachs Retail Chain
Store Sales Index climbed 1.6%, the most in five months, and is up
0.6% on a y/y basis. Despite
the weekly improvement, the ICSC expects a weak month. Redbook
indicated its sales index has fallen 4.4% in the first four weeks
of June, compared to a targeted -4.1%. From
a year ago, sales are also down 4.4%, compared to a target of
-4.2%.
Joseph F. Kalish, Senior Macro Strategist
Kathy Hartley, Senior Macro Equity Analyst
Alejandra Grindal, International Economist
Ned Davis Research, Inc.
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