Most major indices ended a three-session winning streak with slight declines on Tuesday, but the Dow Industrial Average bucked the trend as members Du Pont and Hewlett-Packard outperformed to lead the index mildly higher.

For the broad market, traders faded an early rally; the S&P 500 managed to bump above the cut line on four separate occasions after the opening move higher, but met resistance each time – closing smack-dap on top of the 200-day moving average.  The day’s economic data wasn’t much help in an overall sense as another decline in consumer confidence, erasing the late-spring gains, overwhelmed a strong manufacturing report out of the Richmond region.  

Two of the three traditional areas of safety – utility and consumer staple shares – were the best performing groups yesterday.  Utilities have been on fire, up 10.76% since this latest rally began on July 2.  The interest is a combination of the low interest-rate environment and Congress falling short of the votes to pass Cap-and-Trade.  Consumer discretionary shares led the declines, hit by that latest reading on confidence.

Market Activity for July 27, 2010

CaseShiller HPI

The S&P CaseShiller Home Price Index rose for a second-straight month in May ( big lag to this data) on both seasonally adjusted and unadjusted bases – up 0.47% seasonally adjusted and 1.27% unadjusted.  Theses follow gains of 0.61% and 0.86%, respectively in April.  In general, this index that tracks home prices in 20 major cities has largely stabilized after sliding 32% peak to trough (July 2006 – April 2009) – currently is 29% below the July 2006 all-time high.

In terms of individual city, 19 of the 20 posted monthly price increases for the month; that’s up from 18 in April.  Las Vegas was the sole city to post a decline in May.

To touch on how a few cities have performed since the 2006 peak: Las Vegas home prices are down 56.1%; Phoenix is down 50.7%; Miami is down 47.3%; L.A. is down 35.6%; Chicago is off by 27.1%; New York is down 20.7%; Boston is lower by 13.5%; Denver is down 7.4% and Dallas home prices are just 4.8% below the 2006 peak.

I think this index, along with the other three major home-price measures, will find another round of price declines await.  The CaseShiller index is still enjoying the short-term positive effects of the tax credit, due to the lag in this data compilation, but even the existing-home price measure posted price gains in June despite the drop in sales.  Nevertheless, it is only a matter of time.  We see more distressed homes coming to market via foreclosures and failures to modify loans.  On the new home side, there are reports stating homebuilders, unwilling to continue writing down land losses, are doubling down and building.  

According to Lender Processing Services, the months worth of supply relative to sales of finished vacant lots (developed and ready for building) in Phoenix sits at 89.4 months, in Denver it’s 87.9 months, in South Florida 139.0 months, and Southern California looks relatively scarce with its 39.6 months.)  According to Metrostudy, there are 1.2 million of these finished vacant lots nationwide, just 5% below the 2008 peak – there has been no progress in absorbing this supply.

That seems to be a problem to me; not sure doubling down is going to work out real well.  As supply continues to outpace sales…well, you know what follows. 

Richmond Fed

The factory gauge that measures activity within the fifth Fed district remained hot, coming in at a reading of 16 – a reading of 12 was expected. This is down meaningfully from the previous three months when the survey averaged a reading of 26.3,  but those levels weren’t sustainable.  The July reading is a welcome sign after the manufacturing gauge out of Dallas (the 11^th Fed district) plunged to -21 for July on Monday.

The internals of the report looked good.  New orders fell 12 points to 13, but this is still good activity.  Order backlogs were the ugliest area of the report, down to 1 from 3 in June and 16 in May – if this number goes negative we’ll see the average workweek fall, which means wages will follow. 

For now though the average workweek remains in strong territory at 16, up from 15 in June – these levels are near 17-year highs. 

Consumer Confidence

The Conference Board’s survey of consumer confidence fell for a second-straight month in July, back down to 50.4 (shy of the 51.0 expected) from an upwardly revised 54.3 in June – the survey was conducted through July 21. 

This puts the measure back to the low points of the 1980 and 1990-91 recessions and below the nadir hit in the 1981-82 contraction.  Over the past two months, the overall measure has been dragged down by deteriorating consumer expectations, not just worries about present situations, and that means there’s a lack of confidence the job market will improve over the next six months – which is very likely to have an effect on spending.  The percentage of respondents expecting their incomes to rise over the next six months fell to 10%, the lowest level since April 2009; the lowest number on record is 7.8%, which was hit in March 2009.

The measure of present conditions remains floored.

The expectations measure remains above past recession lows, but has slid to 66.6 from 84.6 in just two months.

The jobs “plentiful” less jobs “hard to get” reading declined to -41.5 from -39.2 in June as 4.3% of respondents stated jobs as “plentiful” (unchanged from June), while 45.8% stated jobs are “hard to get” (up from 43.5% in June).

They’ll Pay for This

In earnings news, WellPoint (the health insurance company) did something really stupid this quarter by beating estimates and reporting profit growth of 18% from the year-ago period.  If they were smart, they’d have come up with more expenses.  This level of profit is obscene and will not go unnoticed by the apparatchiks in Washington.

Have a great day!