U.S. stocks ended lower on balance as the broad market (measured by the S&P 500) halted a three-session winning streak.  The Dow Industrials slipped too, but the NASDAQ Composite was able to extend its winning streak to four. 

European markets were closed yesterday, so no EU debt contagion to talk of per se – not that the market is currently concerned about the issue anyway. 

As one would expect via the positive close for the Naz, tech was the best-performing sector with health-care and utilities rounding out the three sectors that closed higher.  Basic material, energy and consumer staples led the losses.

Well, commodity prices couldn’t rise on Friday as domestic and dollar-based markets were closed, so I was expecting the commodity complex to make up for it yesterday.  It wasn’t the case though as the CRB Index held pretty much steady as price declines among copper, cattle and cotton offset increases in corn, wheat, silver and gasoline.  Yes, gasoline gained more ground, much to the dismay of everyone I’m sure.  I think it’s reasonable to expect commodity prices to trade pretty much flat over the next session-and-a-half as traders wait to see how Bernanke’s press conference goes tomorrow afternoon – a new policy decision by the Fed where the chairman will take questions following FOMC meetings. 

And the direction of the dollar certainly isn’t helping our commodity-price woes; the Dollar Index settled just barely in the $73 handle, closing the day at 73.99 – down 10% over the past year, 18% over the past five years and 35% over the past decade. 

Market Activity for April 25, 2011

Sector Activity for April 25, 2011

New Home Sales

The latest new home sales data came in a bit better-than-expected as the previous month’s (February) number was revised up.   Still, the higher than expected results weren’t meaningful as the first chart below shows. 

New home sales rose 11.1% to 300,000 at a seasonally-adjusted annual rate (SAAR) in March, following the 13.5% decline in February.  That February reading was initially estimated to have slid 16.9%; the result is that the record low for new home sales (February is the all-time low) is 270,000 in SAAR sales instead of the 250,000 previously believed.  

On an unadjusted basis, 29,000 new homes were sold in March – that makes for a new record low for the month, the previous low being the 31,000 sold in March 2009. 

By region, sales rose in three of the four regions with the decline occurring in the South, which is the largest market for new homes.

The number of new homes available for sale remains floored at 183,000 during March.  One would think that this extreme low for new-home supply would justify aggressive building, but the new-home market has to contend with a serious supply glut within the previously-owned home market -- and specifically the distressed properties that are driving prices lower again; new homes have to compete with this number of distressed properties that just keep coming as the foreclosure process has been dragged out and delayed. 

Thanks to the sales increase in March, the inventory-to-sales ratio improved to 7.3 months worth.  The white line on the chart below represents the 48-year average.

The median price of a new home rose 2.9% in March to $213,800 from $207,700 in February, but is down 4.9% over the past year. 

The price of a new home has dropped 18% since peaking at $263,000 in March 2007.   This is nearly half that of the decline within the existing-home market (peak-to-current price) as builders are reluctant to allow home prices to slide due to the cost of production – a cost that is surely rising again.  That said, there are likely other incentives that builders use to bring the effective price lower. 

Dallas Fed

The Federal Reserve Bank of Dallas’ gauge of manufacturing activity slowed in April, falling to a reading of 10.5 (expected to come in at 13.7) after the 11.5 in March. 

Nearly all of the sub-indices fell pretty hard – new orders, production, shipments, inventories and the average workweek (which fell back to contraction mode for the first time since October).  It was the wage and price measures that kept the overall index from a substantial decline – the wages and prices received indices rose as the prices paid index fell just slightly. 

Bottom line:  This was not a great report, not totally weak but illustrates pretty good deceleration – and the fact that prices helped to buoy the measure isn’t healthy.   This is also the second regional manufacturing survey this month to show some weakness within a sector that’s been the MVP of this very weak overall economic expansion. 

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Have a great day!

Brent Vondera, Senior Analyst

Phone: 636-449-4900