U.S. stocks wavered during the entire session.  The major indices put their intraday highs and lows in before 10:30 CDT, then pretty much flat-lined until a little pop in the final hour of trading.  The Dow Industrials was the best performer of the big three, but it was all due to one stock: 3M’s 3.5% jump accounted for 22 Dow points, which more than offset weakness from Boeing, Travelers, AT&T and IBM.

For the broad market, technology, industrials and basic materials led the S&P 500 to a fractional gain.  Financials led the decliners.  Utility and telecoms also closed lower.

The market is just kind of trading in this range of 1160-1175 on the S&P (10840-10955 for the Dow) as traders probably don’t want to get ahead of the March jobs report on Friday.   Stocks will actually be closed on Good Friday.  

It will be interesting to watch how the market reacts to what will be the best payroll numbers in more than two years.  We’ve got a good shot at a 200K-plus increase; we’ll be watching the private sector readings as we’re expecting to get 100K from 2010 census hiring, which is only temporary employment.  Will the market celebrate the good news if private-sector payrolls rise 100K?  Or will traders worry that such a number will hasten some Fed tightening and sell off?  I think we really need to see a substantial multi-month move in payrolls before the Fed signals they begin to mildly end ZIRP.  We shall see. 

Market Activity for March 30, 2010

S&P Case-Shiller HPI

The S&P Case-Shiller Home Price Index showed home prices rose 0.32% in January on a seasonally-adjusted basis (economists had expected a decline of 0.25%).  This marks the eight-month of increase and the year-over year reading is now about flat, down just 0.7% in January.   This year-over-year figure was -3.1% in December and has improved from its worst level of -19.01% back in January 2009.

Currently, the index has home prices off by 29.6% from the peak in mid 2006, which is in line with the broader existing home sales data that has prices down 28.3% from the 2006 peak.  (The median price of an existing home bounced 10% last spring/summer when the initial stages of the home-borrowers tax credit boosted sales but has since plunged back to that cycle low, which was first touched in January 2009.)

Consumer Confidence

The Conference Board’s measure of consumer confidence bounced back in March from its 10-month low hit in February.  The reading rose to 52.5 from 46.4, but remains below the January and February levels – the consensus estimate was for a print of 51.0.  

Good to see the overall reading rise, but there are two levels we’re watching for to offer conviction that consumer sentiment is beginning to truly improve.  A move past 60 has been elusive and when it occurs will show the beginning of some improvement among consumers’ mindset – notice on the chart below that 60 is still a full-blown recessionary level.  The other level is 75, which gets us fully beyond past recessionary levels. 

The present situation index improved too, up to 26.0 in March from 21.7 – that February reading was revised up from 19.4, which at the time was a new cycle low.  Now that it has been revised higher, the cycle low remains 20.20 touched in December 2009 – the all-time low is 15.80 hit in December 1982.

The expectations index, which is designed to measure respondents’ economic expectations six months out, rose nicely to 70.2 in March from 62.9 in February.  The cycle low, which is also the all-time low, of 27.30 was touched in February 2009. 

As I explain every month, what must be watched are the respondents’ answers to the labor market questions.  Specifically, the difference between the jobs “plentiful” reading and that of the jobs “hard to get” reading.  This is likely the best signal of future spending plans as consumers must have some confidence that the job market is about to improve. 

This reading improved in March to -41.4 as 4.4% of respondents stated jobs as “plentiful” from 4.0 in the prior month, while jobs “hard to get” progressed to 45.8% from 48.7%.  We need to see meaningful improvement here.  The next couple of jobs reports should drive this reading higher. 

Consumer activity will remain muted over the next 12-18 months as households have a lot of debt still to pay down and government transfer payments (which have boosted the spending figures) cannot continue upon the current trajectory.  Nevertheless, the first step is improvement in confidence, so let’s hope we get it. 

Have a great day!

Brent Vondera, Senior Analyst

Phone: 636-449-4900