U.S stocks were able to shake off early market weakness as it’s tough to keep this market down on any given day with traders expecting more to come from the central banks – the Fed signaled their willingness to do more during last week’s FOMC statement and the ECB has all but announced a trillion-euro LTRO coming this month (LTRO is a long-term lending facility to the banks and the December iteration totaled €489 billion).

The major indices began the session meaningfully higher, helped by gains over in Europe.  However, by the time 9:00 STL rolled around and the third economic release of the day missed expectations by a wide margin, the selloff ensued.  But another reversal took place shortly after and the broad market nearly made it back to positive territory.

Those European markets were fueled by a good German employment report, as it offset another bad retail sales report out of that country – down big for a second-straight month and has advanced in just one of the past five months.  But payrolls in the country grew by 50,000 in December, pushing the jobless rate to 6.7% (that’s huge for a country whose jobless rate has averaged 10% over the past 20 years).  This also took focus off of Spanish unemployment, which rose to 22.9% from 21.6% in the prior month, and of course a region of the continent where the real problems reside.

Anyway, with the first month of the year complete, the broad market (S&P 500) gained 4% in January – best start since 1997 – with basic materials and financials leading the way.  Undoubtedly, traders are set up for yet more accommodation from central banks because economic activity certainly doesn’t warrant these areas to be leading, but the year is young.  Conversely, utilities, telecoms and consumer staples have been the laggards.

Treasurys were on fire again yesterday, with the 10-year yield sliding to 1.79% and just eight-basis points from the postwar low of 1.71% hit in September.

Market Activity for January 31, 2012

Sector Activity for January 31, 2012

CaseShiller HPI

The CaseShiller Home Price Index measured a decline of 0.70% on a seasonally-adjusted basis for November (expected to fall 0.50%), which follows a larger-than-previously reported decline for October – down 0.67% instead of the -0.62% initially reported.  These CaseShiller numbers are really a three-month rolling average, thus the November result is a smoothed out reading from September, October and November.  Seventeen of the 20 cities/districts tracked posted a price decline in November on a seasonally-adjusted basis.

This drop marks the seventh-straight monthly decline and sends the measure to a new post-bubble low.  Home prices are down 7.85% over this three-month, as calculated by CaseShiller.

On an unadjusted basis, home prices slid 1.27% after the 1.25% decline for October’s three-month average.  Nineteen of the 20 cities/districts tracked posted a decline; Phoenix was the only city to post an increase.  It is also the city that’s recorded the second-largest decline from the 2007 peak – down 56.4%.  And while we’re at it, Las Vegas has posted the largest decline, down 61.6% from the peak.  On the other side of the coin is Dallas at just a 9.2% decline from the peak.

Recently, Atlanta and Chicago have posted the worst results as home prices in Chi-Town are down 21.3% at an annual rate over the past three months and Atlanta home prices have gotten smoked, down 42.3% at an annual rate since September.

The total unadjusted measure has home prices down 12% on an annual basis for the September-November period and is very close to making a new post-bubble low, as the chart below illustrates.

Chicago PMI

On a more positive note, we still have manufacturing and the latest regional survey suggested that the industry continues to roll.  The Chicago Purchasing Managers Index (measure of factory activity in the region) printed a reading of 60.2 for January.  Now, that missed expectations by a good margin (expected to come at 63.0) and is down from the 62.2 for December, but this is still a very good level.

Consumer Confidence

And back to the negative, the latest consumer confidence reading showed a decline for January when it was expected to rise.  The Conference Board’s reading on consumer sentiment fell 3.7 points to 61.1 (expected to jump to 68.0).

It was a large eight-point drop in the current situation measure that was the primary reason the headline number declined.  That reading fell to 38.4 from 46.5 in December.

The expectations side of the report (respondents’ views of their finances six months out) held up much better, falling just 0.8 point to 76.2.

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Have a great day!

Brent Vondera, Senior Analyst

Phone: 636-449-4900