U.S. stocks closed lower for the fifth session in six as the European debt contagion offset better-than-expected domestic economic data.  The market looked set to erase early-session losses as afternoon trading began – ala Monday’s rebound that nearly erased early losses – but late-session comments from the Fed Chairman killed momentum.

A bang up number from Chicago PMI (manufacturing) is largely what helped stocks erase opening losses by mid-session; however, Bernanke’s comments later in the day, explaining that the rate of growth is insufficient to “materially” reduce the unemployment rate, sent the market back down.  He added that the long-term unemployment problem was “very worrisome” – 40% of the unemployed have been out of work for at least six months, and they watch skills erode as a result.   The market is expecting an upside surprise for Friday’s jobs number, and these comments threw some cold water on that expectation.  Still, the latest improvement within the jobless claims data does suggest we’ll get a payroll increase that closes in on 200K – weak for a recovery but it’s improvement.

Tech, health-care, and financials led the broad market lower.  Telecom, basic material and utility stocks were the best-performing groups.

The CRB closed down slightly despite solid moves within precious metals, cocoa and cotton.   The energy complex kept the index from advancing as crude, gasoline and heating oil prices all fell.

Stocks look set to turn around this morning as the ECB (European Central Bank) has become very concerned the contagion will spread to the Eurozone’s third-largest economy (Italy).  As a result, they’re signaling an increase in security purchases – increasing their purchase of government debt and possibly other assets.  Stock-index futures are up big on the news. 

Market Activity for November 30, 2010

S&P CaseShiller HPI

The September results from the CaseShiller Home Price Index (HPI) showed another round of trouble remains in play, which has been pretty obvious all along based upon supply figures.  Nineteen of the 20 cities tracked posted month-over-month price declines for September.  Based upon the existing-home sales data we’ve already received for October, CaseShiller is likely to show additional weakness in their next report. 

On a seasonally-adjusted basis, this measure gauged that home prices fell 0.80% from the previous month – the third-straight decline after three months of increase in the spring when the second iteration of the tax-credit was in full effect.  From a year-over-year perspective, prices fell 1.61% during the third quarter; this follows two quarters of y/o/y increases.

On a non-adjusted basis, which as we’ve talked about is probably the most reliable measure as tax-credit schemes and foreclosure moratoria have rendered the typical buying trends useless, 18 of the 20 cities tracked showed prices declined – Washington DC and Las Vegas were the only cities/districts to manage an increase.  This is inconsequential in the case of Vegas as it has been the hardest hit since prices peak in 2007 (down 57.6%). 

Unadjusted, prices were down 0.71% for the month, but up 0.59% from the year-ago period.  That y/o/y reading has cooled from +4.64% in May to the current fractional gain as of September, signaling negative readings are on the horizon. 

Chicago PMI

The November reading from the Chicago Purchasing Managers Index (PMI) mirrored what most of the other regionals have shown, factory activity continued to roll.  In fact, the latest reading from Chicago was robust at 62.5 and the third-straight month at 60 or better.  These are hot readings as a number above 50 suggests factory activity expanded.  It is highly unusual for such high readings from Chicago in an environment with which GDP fails to manage 5% prints, currently we’re struggling to hit half that. 

Anyway, the 62.5 reading followed 60.6 for October – beating expectations, which had the figure slipping to 59.9.  The internals of the report continued to look good, save inventories and prices. 

New orders rose to 67.2 from 65.0 in October – the hottest for this cycle; employment hit 56.3 from 54.6 in the previous month – hopefully this means an increase in manufacturing jobs, which have been down for three months; supplier deliveries fell but remained above 60 – a higher number means deliveries slowed, which suggests suppliers had a hard time keeping up with orders; order backlog slipped and remained in contraction mode, but just barely.

The weaker aspects of the report were inventories, which slipped back to contraction mode, down to 48.4 after the 54.9 in October.  And prices paid continue to rise, up to 70.7 in November from 68.9 in October and 55.0 in September.  As I keep harping on, this will obviously put pressure on margins. 

Consumer Confidence

The Conference Board’s gauge of consumer confidence rallied to a reading of 54.1 last month (exceeding the 53.0 that was expected) from 49.9 in October.  As the chart below shows, the current level doesn’t actually suggest much confidence, but we’ll take what we can get.  Ultimately, we’ll need to see a durable and substantial level of job growth to propel the measure above the 60 mark, which is still well below the 40-year average of 94.7 (except for a single-month blip above 60 the reading has been stuck below this level for longer than at any time in its history). 

The November increase was propelled by the expectations survey, which rose nearly seven points to 74.2 – this reading gauges respondents’ outlook of their financial conditions six months out. 

The present conditions survey barely budged, up a half point to remain at a lowly level of 24.0.

The critical jobs “plentiful” less jobs “hard to get” measure has been stuck in the -42 handle for three months and has been at -40 or worse for 22 months – longest in its history.

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Have a great day!

Brent Vondera, Senior Analyst

Phone: 636-449-4900