U.S. stocks rallied yesterday, reflecting some easing regarding European debt/economic concerns and an expectation that Mr. Bernanke will explain monetary policy will remain aggressively accommodative via today’s press conference.

Treasury securities continue to trade at very high prices though (low yields – still below 3% on the 10-yr), so that market remains very negative on growth prospects – part of this Treasury rally is also about an expectation that another round of bond purchases is coming (not in the very near future but following any stock-market weakness) and traders getting in ahead of that buying.

The cyclical led the rally as basic materials, consumer discretionary, tech and energy outperformed.  Consumer staples, utilities and health care were the laggards – staples actually closing lower.

Chinese finance officials again expressed their willingness to support Europe by buying more of their bonds (and I’m sure they are willing as they’d like to have the Europeans even more in their back pocket).  The comments seemed to offset the negative news that a gauge of German economic sentiment sank 12.1 points to a reading of

-9.

And the market’s optimism that G-Pap (Greek Prime Minister George Papandreou) would win a confidence vote last night also gave stocks a lift (the next round of bailout funds were supposedly contingent upon G-Pap winning confidence and the austerity plan his government is supposedly working on).  Of course, the EU/IMF were always going to release funds no matter the outcome, as we’ve already seen the Germans cave on their demands, because this is more a bailout of the EU banking system than of Greece.

So yesterday’s rally was largely about that expectation G-Pap would prevail politically.  However, this morning futures are lower as the problems remain and the Greek citizenry is piping mad because they wanted G-Pap to go – the populace shows zero desire to endure austerity, but such is the case when more than half of your economy has depended on government programs.

Market Activity for June 21, 2011

Sector Activity for June 21, 2011

Existing Home Sales

The National Association of Realtors (NAR) reported that sales of previously-owned homes fell 3.8% to 4.81 million at a seasonally-adjusted annual rate (SAAR) in May – better than the 5.0% drop that was expected, but the April reading was revised down (worse); thus, factor that downward revision in and the May results were worse than expected.  Distressed sales held above 30% of all transactions in May.

I choose to post the single family sales only as this chart offers a long-term look – the total figure only goes back to 1999 as that’s when NAR began counting multi-family units.

Sales of single-family units fell 3.2% to 4.24 million SAAR (15% below the year-ago results when the tax credit was in play) and multi-family unit sales slid 8.2% to 570,000 SAAR.

The number of existing homes available for sale fell 34,000 to 3.182 million (that’s the official number, add in the foreclosure pipeline and the number may double).  Again, this is single-family only; total units fell 4,000 to 3.720 million.

However, since the decline in sales overwhelmed the drop in the number of homes available, the months worth of supply for single family units (inventory/sales ratio) rose to 9.0 from 8.8 in April.  The total number rose to 9.3 months worth from 9.0 in April.

And just to keep the whole housing market picture looking all the more strange, the median price of an existing home rose $5,000 to $166,500 (down 5% from the year-ago period, but up 3% for the month).   Prices were up for the second-straight month even as the market is awash in supply.   Now, this is off of the new cycle low hit in February, but reality is prices need to fall further – I just hope it’s only a 5-10% move down (which I suspect will be the case) from the current low point instead of the 20-25% move that some are calling fall; such a move would send us into a state of depression for sure.

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Have a great day!

Brent Vondera, Senior Analyst

Phone: 636-449-4900