U.S. stocks ended the way they began yesterday as the session was bound by weakness.    The financial press attempted to paint the latest home sales data as a sign the economy is stronger than believed, and maybe the market bought into this claim for a while, but just a glance at the charts below clearly show the stretch in that claim. 

The broad market began the session lower, but rebounded after the latest existing home sales data showed a bounce off of the previous month’s record decline. Stocks were able to hold close to the cut line for most of the session, but succumbed to pressure again in the final 90 minutes.

Metals and energy prices gained ground even as equities failed to; commodity prices will face headwinds due to weak economic growth, but they’ll be buoyed by the Fed’s message that they’ll be trying to manufacture inflation by putting pressure on the U.S. dollar. As a result of what the Fed is doing and will continue to do, commodity prices could catch some fire even as demand is lacking – does anyone really believe that oil prices would be trading at $75/barrel without the Fed unprecedentedly easy?  In this supply/demand environment something closer to $30 seems more appropriate. 

An economist from Goldman Sachs was out yesterday predicting that the failure to extend the current tax rates would cut GDP by nearly two percentage points in 2011.  It’s about time Wall Street started piping up about this situation.

I must say though, even for someone who despises – why sugar-coat it? – the current policy path, a two percentage-point reduction seems a bit exaggerated; in real economic terms that’s huger than huge.  But if it’s only a half-to-three-quarters of a percentage point, it’s more than enough to drive this anemic recovery into recession.  The administration wants to create jobs.  Well, you don’t get there by raising the cost of doing business, whether it’s via tax hikes, increased regulation or both.  Washington wants to thwart the more affluent among us from increasing their wealth – sorry to break it to them, but in doing so they only make the entire nation poorer.

All 10 major industry groups closed down for the session.  Tech and telecoms were the outperformers down 0.01% and 0.49%, respectively.  Financials and industrials were the big losers as they fell 1.96% and 1.49%, respectively.  

Market Activity for September 23, 2010

Jobless Claims

The Labor Department reported that initial jobless claims rose 12,000 to 465,000 (450K was expected) in the week ended September 18 – the prior week’s reading was revised up 3,000 to 453,000 claims.  So here we are still stuck above the 450K level, which has been the trend for 11 months now since first moving below the extreme elevation of over 500K last November.  In fact, the trend may be a bit worse of late as we didn’t even blipped below 450K in this most recent move down, but remain solidly in the range of 450K-500K.

The four-week average of initial claims fell 3,250 to 463,250.

Continuing claims (those on benefits for more than a week) were mixed as the standard issue (lasting 26 weeks) fell 48,000 to 4.489 million, while emergency level of claims (those that extend out to as long as 99 weeks) rose 207,968 to 5.171 million.

This high frequency data continues to show that the long-term unemployment problem persists, there’s no substantial employment growth taking place and we may even have to deal with negative monthly readings in private-sector payrolls on occasion.

Existing Home Sales

The National Association of Realtors (NAR) reported that previously-owned home sales rebounded by 7.6% in August (beating the expected 7.1% increase) to 4.13 million units at an annual rate.  This follows the 27.0% plunge in July (revised up from 27.2% initial reported last month), which was the deepest monthly decline on record – these records go back to 1968. 

Single-family units rose 7.4% to 3.62 million units and multi-family rose 8.5% to 510,000. 

According to NAR, first-time homebuyers purchased 31% of home in August, down from 38% in July; investor-related purchases rose to 21% from 19% in July; distressed home sales rose to 34% from 32%; and all-cash sales slipped to 28% from 30%. 

The number of single-family homes available for sale held pretty steady in August, up slightly to 3.39 million units from 3.34 million in July – this is for single-family only and does not include shadow inventory (homes in the foreclosure process), which housing-market analyst gauge at an additional 3-7 million units.

The inventory/sales ratio dipped to 11.3 months worth from the cycle high of 11.9 in July.

The median price of a previously-owned home fell 2.0% last month to 179,300 – again, this is for single-family only.  For all existing homes, which include condos and co-ops, fell 1.9% to 178,600.

Home sales remain 10% below what many had believed to be the market bottom of 4.05 million units hit in late-2008/early-2009. 

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Have a great weekend!

Brent Vondera, Senior Analyst

Phone: 636-449-4900