U.S. stocks rallied for an eighth day in 10 on Wednesday as the broad market quickly recoups that 6.4% slide that ran mid-Feb. through mid-March – just 15 S&P 500 points to fully recover.   The fact that the market continues to shrug off deep trouble in Japan, increasing Mideast tensions, EU debt-financing incapability, U.S. housing in double dip, and now Q1 GDP expectations that have been halved in a matter of about two weeks is not only amazing, it’s strange – even knowing the Fed is backstopping losses…for as long as that works anyway. 

The day’s economic data was helpful on balance, but again there is really no correlation between the quality of data and the direction of stock prices lately.  Nevertheless, it’s worth noting that the ADP Employment Survey estimated that private-sector job growth will come in at 200K for March, which follows the 210K increase in February.   The mortgage apps report was negative, but any data on employment overrides that release. 

Telecoms and utilities led the advance for a second-straight session.  Tech and industrials were the laggards, but all 10 major industry groups did close higher.

Crude barely budged yesterday, closing down just 54 cents to $104.26/barrel (and is back up to $105.39 this morning), even as the weekly energy report showed oil supplies jumped twice as much as expected.  Current U.S. stockpiles stand at 355.7 million barrels, which is 13% higher than the five-year average.  Fuel demand fell to the lowest level since November, and is 2.1% lower than a year ago when payrolls were slimmer by 1.2 million.  It appears a little demand destruction may be setting in at current prices. 

Market Activity for March 30, 2011

Sector Activity for March 30, 2011

Mortgage Apps

The Mortgage Bankers Association (MBA) reported that its applications index declined 7.5% last week as both refinancing and purchase activity dropped. 

Applications to refinance a mortgage slide 10.1% for the week ended March 25 as the average contract rate on the 30-year fixed mortgage rose 12 basis points to 4.92%.  The MBA’s refinance index is down 18% year-over-year and off by a whopping 56% since October when mortgage rates hit bottom – 4.21% on the 30-year fixed. 

Apps to purchase a home slipped 1.7% last week.  That index is down 10% over the past four months and off by 33% since the home-buyers tax credit expired last spring.

ADP Employment Survey

Payroll outsourcing firm ADP (in conjunction with Macroeconomic Advisors) estimates that 201,000 private-sector jobs were added in March, following the 208,000 increase the survey estimated for February, which proved to be right in line with the official data.  This latest reading marks the 15^th straight month in which payrolls have increased, yet the first 11 of these months posted very weak results.  To wit, according to ADP, payrolls rose 52K/month during the first 11 months of this streak; they’ve accelerated to 211K/month in these latest four months.

ADP estimated that service-sector payrolls rose 164,000 in March, while goods-producing sectors added 37,000 thanks to exactly that same increase within the manufacturing sector – the construction sector shed another 5,000 positions, which puts the total losses at 2.123 million since January 2007.

Large firms (> 500 employees) added 17,000 positions; medium-sized firms added 82,000 to payrolls; small firm (< 50 employees) increased payrolls by 102,000. 

This is a good report and we should see a similar follow through when the official results are released tomorrow morning.  The official government-produced jobs report has payrolls up 145K/month since October; we should see this accelerate to something closer to 200K over the next few months – assuming we escape a major shock to the system, of which the chances of such an event are heightened right now.  Still, we need better than this in order to absorb population growth, college grads entering the workforce and the millions who have been sitting out for various reasons re-enter the job market. 

In addition, a housing market that’s dealing with a terrible supply glut will need job growth of at least 300K/month for an extended period of time to drive the sales needed to absorb the current and coming supply (on top of the already official 3.5 million home available for sale there are 4.3 million mortgages 90 days late or in foreclosure, 1.3 million mortgages that are 60 days delinquent, and 11.1 million mortgages that are underwater). 

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Have a great day!

Brent Vondera, Senior Analyst