U.S. stocks held up yesterday, rising for a second-straight session, even as the day’s economic reports disappointed on balance.   But there was acquisition activity, which almost always helps drive the market higher, as Thermo Fischer announced it would buy medical diagnostics firm Phadia.  Then too, Chicago Fed Bank President Evans gave a speech in which he stated the current level of economic activity means monetary stimulus shouldn’t be pulled back.  It appeared that the release of these comments coincided with the market’s move from negative territory late in the morning session. 

And of course there was the LinkedIn IPO, which ended the day up 109% to trade at 350 times what people guess will be current-year earnings – I’m sure it’s worth it.  And while we’re talking about ridiculous things, I noticed an analyst (someone who’s been around for a long time) mention that the initial claims reading was “an excellent number.”  Really?  We’re stuck above 400K when something drastically lower is required to move the long-term unemployment situation from historic heights.  Fantasyland remains in vogue, no doubt.

Industrial, telecoms and consumer staples led the way.  Health care, basic materials, energy and financials were the losers.

It was one of those rare days in which stocks rose without carrying the entire risk trade with it.  That is, the CRB Index fell as 15 of its 19 components saw prices decline. 

The Japanese economy slid into recession as first-quarter GDP slumped 3.7% at an annual rate.  That economy was clearly hurt by the March 11 earthquake/tsunami, but the prior quarter was revised lower to show things were already in deep trouble as GDP tanked 3.0%.  So Japan is now officially in recession and considering that the earthquake-related damage didn’t occur until late last quarter, one should expect another deep contraction for the current period.  Add this onto an entire Asian region that is in tightening mode (as they attempt to quell inflation) and what’s been a key economic engine for global growth during this cycle will be running at a slower pace. 

Market Activity for May 19, 2011

Sector Activity for May 19, 2011

Jobless Claims

The Labor Department reported that initial jobless claims fell 29,000 to 409,000 last week (expected to fall to 420K) from an upwardly revised 438,000 (previously reported at 434K) last week.  So we’ve seen initial claims fall 69K over the past two reporting weeks after that surge back to 478K.  However, this report marks the six-straight week in which these claims are above 400K, which shows there’s been an increase in firings.  It’s good to see the figure fall back again, but we need to see an average of 350K. 

The four-week average ticked up 1,250 to 439,000.  This should come down a couple of weeks out as that 478K print from three weeks back is removed. 

Continuing claims fell as the standard issue (covering first 26 weeks of joblessness) slid 81,000, while the emergency level of claims (that extend benefits out to 99 weeks – these expire at the end of the year) rose just 4,400.  Although, these numbers have a tendency of being revised worse so we really don’t have the best feel for what continuing claims did until the following week’s report is released. 

Overall, as mentioned above, some will look at this report and rejoice but we’ll see in the next jobs report that the bounce back above 400K in initial jobless claims isn’t going be helpful to the labor market.  And while continuing claims have come down nicely over the past six months, 7.819 million people still on continuing jobless benefits is surely not a healthy environment. 

Existing Home Sales

Existing-home sales fell 0.8% to 5.05 million units at an annual rate (SAAR) in April (expected to rise 2.0% to 5.20 million) after a downwardly revised increase of 3.5% in March.  Even though the number missed expectations, a number around 5 million in units sold isn’t bad on the surface, it’s just woefully insufficient for the total supply when factoring in shadow (90-day late/foreclosure) inventory. 

The number of available homes for sale rose 350,000 to 3.87 million.  That’s the official number.  Add in 4 million mortgages that are 90-days late or in foreclosure and 14 million mortgages that are underwater (so I don’t know how many strategic defaults this results in but it will be a few) and we’ve got quite the problem on our hands. 

The median price of an existing home rose $3,900 to $163,700.  That makes a lot of sense.  It will be coming down over the ensuing months. 

Philly Fed

The Philadelphia Federal Reserve Bank’s gauge of manufacturing activity slid in April to a reading of 3.9 from 18.5 – it was expected to accelerate to 20.0. 

This is the second regional report (we’ve only received two thus far) for April that has shown serious deceleration in factory activity. 

New orders fell 13 points to the lowest level since last summer’s “soft patch;” unfilled orders slid 21 points to contraction territory; and the average workweek plunged 14 points to the lowest reading since October when it went negative. 

Sign up to receive the Daily Insight and other Acropolis publications here.

Have a great weekend!

Brent Vondera, Senior Analyst