U.S. stocks got hit pretty hard yesterday, as everyone knows by now, marking the fourth 3%-plus decline since the May 6 flash crash sent an unjustified level of complacency for a loop.  The S&P 500 breached that 1040 mark we’ve been talking about it would eventually retest, but it did manage to close just above that mark thanks to a slight rally from the day’s low mark in the final 10 minutes of the day. 

For the Dow, 10K we hardly knew ye…again.  This latest stint above 10K lasted all of 13 trading sessions.  For new readers who may be confused by the heading, it’s a reference to round and round we go… http://www.youtube.com/watch?v=iAgX6qlJEMc

A confluence of events put the hurt on the market.  The Shanghai Composite got wacked by 4.3% the night before, down 30% from its latest peak, on concern that China’s growth will wane and this will impact the global recovery – a leading economic indicator for China was revised down big time to a reading of +0.3% from +1.7%; it wnet from suggesting the hottest growth yet during this recent recovery to the weakest since November.  A slowing Chinese economy will impact U.S. manufacturing as a key element of the factory revival has been export activity. 

Also, an ECB funding facility expires and EU banks will have to hand $550 billion over to the central bank.  Of course, the ECB is not going to pull liquidity out of the system, especially after EU bank CDS explodes, so this isn’t a threat beyond a few days in my view.  But what it does show is just how dependent banks are on the ECB. Still, so dependent even as we’re supposed to be in the process of a global expansion?  Reality is slapping those who refused to believe things are different this time.

Compounding the pre-market weakness was an unexpected slide in the latest consumer confidence reading, more on that below.

In the day’s laugher, the House, in the typical act of desperation, decided to extend the homebuyers tax credit so the deadline to close on a contract is now September 30, formerly from June 30.  This does not help new buyers, you don’t get the credit if a contract hadn’t been signed by April 30.  All this does is halt any potential contract cancelations if a buyer feared they wouldn’t close by June 30.  In the end, the same issue holds true for the housing market: a major level of support has been pulled and while interest rates are very low, without the subsidy we’ll see several month of weakness and probably another round of price declines.   All the subsidy did was delay the inevitable, and this latest extension may just delay it a bit further.  The House will also work on passing another extension to jobless benefits today.  Not that it’s any surprise, but they’re pulling on the wrong strings and clearly don’t get it.

Market Activity for June 29, 2010

S&P Case/Shiller HPI

The seasonally-adjusted Case-Shiller Home Price Index rose 0.44% in April after a two-month stretch of decline.  The unadjusted reading rose a strong 0.84% for the month, halting a six-month stretch of weakness.  (S&P has noted over the past few months that the seasonally-adjusted number is likely being distorted by unusual factors, namely the government programs – the unadjusted figure has been the one most watched during the history of this index anyway.)

On a year-over-year basis, the 20-city Case-Shiller index has home prices up 3.81%, the third month of increase.  This is the best y/o/y reading since September 2006, but this is off of the cycle low hit in April 2009.

For April 18 of the 20 cities tracked by the index registered price gains, double the number that rose in March.  California has showed the best price action over the past few months, of course it was just about the worst hit.  The three Cali cities in the index account for 27.4% of the overall reading.  San Francisco’s 2.22% price month-over-month price increase accounted for 23% of the overall index’s monthly increase.  Throw L.A. and San Diego in and California accounted for darn-near 40% of the monthly increase. 

The largest drags came from New York and Miami.  New York alone accounts for 19.4% of Case-Shiller. 

Overall, the report is a good one, but this is for April – the heart of the tax-credit buying.  The results for June and July will be more important to watch as it will show how the housing market reacts to the withdrawal of a very significant crutch.  Based on what we’re seeing from new home sales and applications for previously-owned home purchases, along with a still very high level of foreclosure and the eventual distressed properties to hit the market as a result, Case-Shiller is likely to turn down again. 

Consumer Confidence… or is it Diffidence

Well, last week we talked about how the UofM confidence measure was diverging from the various other readings on consumer sentiment – reporting better results as all others were declining.  Now, after the most-watched reading on this topic plunged in June, the Conference Board’s survey, that divergence has become even greater.

The Conference Board’s confidence measure slid to 52.9 for June from 62.5 in May, erasing the improvement (although it wasn’t all that to begin with) in the prior two months.

For the segments that make up the overall index, the present situation and expectations indices:

The present situations measure fell to 25.5 from 29.8.  This is above the cycle lows hit at the end of 2009, but back to the level just above those lows.   Those stating conditions are “good” fell to 8.0% from 9.7%, while those stating conditions are “poor” rose to 42.4% from 39.5% in May. For clarity, the all-time low of 15.8 was hit in December 1982. 

The expectations index fell to 71.2 from 84.6 in May, a level that had gotten a lot people prematurely excited.  Respondents anticipating more jobs in the months ahead decreased to 16.0% from 20.2%, while those anticipating fewer jobs increased to 20.8% from 17.8%.  The cycle low, also the all-time low, of 27.3 was hit in February 2009.  So, we’re a miles above that level, but as the chart below shows 71 is a recessionary-type level.

The jobs “plentiful” less jobs “hard to get” reading fell to -40.5 in June from -39.3.  The cycle low is -46.9 hit in November 2009 and the all-time low is -58.7 hit in December 1982.

And a look at the regional results showed the drop wasn’t all about big troubles in the deep South and Southeastern areas of the country, which are obviously affected by the GoM fiasco.  Seven of the nine regions showed decline in the overall confidence measure – New England (CT, ME, NH, MA, RI and VT) and West North Central (IA, KS, MN, MO, NE, ND and SD) being the only regions up.

Have a great day!