U.S. stocks fell for a fifth day in seven as European debt concerns have engulfed Spain and Italy, and EU officials are no closer to reaching resolution on the Greek bailout.  Still, the broad market just about halved its early losses as the S&P 500 was lower by 1.55% midday; it ended the day down just 0.81% -- in terms of points on the Dow, that index was off by 182 points at its worst but closed down just 94 points.

Tech, energy and consumer staple shares performed the best – all groups did close lower for the day, however.  Financials led the losses as Bank of America is back below $10/share – off nearly 30% for the year (bank analysts fear they’ll need to raise another $50 billion to meet new capital requirements).

Conditions within the EU sovereign-debt market deteriorated to levels that have global markets on edge as 10-year bond yields broke above 6% in Italy and Spain for the first time since the euro zone was created – 7% is seen as the point of no return for these governments as their economies don’t have the growth rates to overcome that cost of money.    What’s more, the latest stress test the EU has run their banking system through did nothing to assuage concerns.  Those results were released on Friday and showed that just eight banks failed.  However, word is the test included neither a debt default scenario nor a jump in inter-bank funding costs – both of which seem investable to me.

The financial markets keep hoping for a quick and easy solution to developed-market (DM) debt, but this isn’t how it works; the elixir is a combination of time, common sense budgets and pro-growth policies.

The commodity complex declined as only three of the CRB Index’s 19 components gained ground for the day – gold, silver and OJ.  The price of crude fell $1.30 to $96/bbl and wholesale gasoline slipped three cents to $3.10/gal.

But both oil and gasoline are higher this morning as U.S. stock-index futures are pointing to a higher open.  The U.S. equity market is getting a lift from European bourses, which are up in their session, despite the fact that the ZEW Indicator of economic sentiment sank to -15.1 (it’s been falling for five months and the -15 printed for July is well below the +26 average).  U.S. futures received a little more boost from former EVP of the New York Fed as he stated the chances of more QE are rising with each week of weak of data.

Market Activity for July 18, 2011

Sector Activity for July 18, 2011

NAHB Housing Market Index

There wasn’t much on the data front Monday (we get back to the big stuff this morning with housing starts for June), but we did have the National Association of Home Builder’s gauge of confidence.

The reading remains stuck in deep pessimism territory as it printed 15 for July, up just two points from the June reading – although it was a bit better than the 14 expected.

Overall though we’d need some major improvement to get anyone excited about this release as it’s been mired since housing began to collapse in 2007.  As we’ve discussed before, it takes a reading above 50 to illustrate that the majority of respondents stated conditions as “good.”  So, at current levels you get a good picture of how many builders view conditions as “poor.”

Such views are no surprise considering builders have both distressed properties and higher material costs to deal with – the former makes it tough to compete as distressed properties cause supply to increase and puts big pressure on prices; the latter makes it even more difficult to compete on price and crushes profits.

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Have a great day!

Brent Vondera, Senior Analyst

Phone: 636-449-4900