U.S. stocks shook off another spate of European concerns, actually side-stepping the issue quite deftly considering all evidence points to a sovereign debt situation that will rage in time. 

Energy, utility and telecoms gained ground.  The other seven of the 10 major industry groups closed negative, led by financials and industrials. 

The broad market endured the third-straight week of decline, which is the longest stretch since August. But in terms of degree there is no similarity as last summer’s move lower was significantly more pronounced as the S&P 500 was 14% off the near-term peak (today it’s less than 3% from the recent peak), sitting at 1060 and looked headed for the 900 handle until Bernanke turned it all around with his August 27 QE2-is-coming speech. 

Those European debt concerns took center stage on Friday as not only peripheral-economy (Greece, Ireland and Portugal) debt spreads widened but Spain’s did too.  There are concerns that the regional Spanish elections this weekend will result in a rout for the Socialist (which not looks to be the case) and thus the new governments will uncover a debt situation that is worse than has been acknowledged – much like saw occur in Greece. 

The CRB Index gained some ground as 11 of its 19 components saw prices rise.  The prices of agriculture, precious metals and the energy complex (crude settled back to $100/bbl) were the movers. 

Market Activity for May 20, 2011

Sector Activity for May 20, 2011

Week’s Data

We didn’t have an economic release on Friday so let’s look at what we have this week.

The big numbers will be Richmond Fed, durable goods, the latest report on home prices, the first revision to Q1 GDP and personal income and spending. 

We’ll watch the Richmond Fed survey to see if the third regional manufacturing survey for May shows deceleration – the sector is getting hurt by supply chain problems due to Japan’s factory outage, but a clear slowing for all of Asia is present.

Durable goods will provide some insight on business spending during April.  The proxy for business spending on equipment and software bounced in March, but has slowed considerably over the past few months – thus providing much less boost to GDP.  We’ll see if the bounce in March was the beginning of some acceleration.

The latest home price measure comes from the Federal Housing Finance Agency, which covers properties with only conventional mortgages.  That reading posted the second-largest monthly drop in home prices during February and is expected to show the eighth decline in nine months for April – we know the double-dip in housing is on, but these number are important to see the degree.

The first revision to GDP is expected to get revised up to 2.2% from the initial print of 1.8%.  Economists expect the inventory and business spending components to provide the higher revision.  But trade is going to weigh more heavily than previously expected so I’m not sure we’ll see the improvement that’s expected.  Besides another near 2.0% is much too weak anyway. 

Personal income and spending figures will rise again in April.  What we’ll watch for is how the nominal increases stack up against another 0.4% increase in CPI for the month, after all inflation adjusted income and spending is what matters most. 

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Have a great day!

Brent Vondera, Senior Analyst

Phone: 636-449-4900