FMX | Connect – www.fmxconnect.com - (Reported 7/27/2010)
Excerpt from MARKET MUSINGS & DATA DECIPHERING
MARKET COMMENT ... WE'RE ALL CHARTISTS NOW
We’re 142 trading days into the year – 52 days (37%) have seen 1% or greater moves. And the S&P 500 is now flat as a beaver’s tail on the year. I call this the meat-grinder market. Again, a huge rally into yesterday’s close – and now the S&P 500 is sitting right at the 200-day moving average. This is starting to get interesting. Again, the lack of ratification from Mr. Bond as the 10-year note yield came back and closed the day a smidgen below 3%.
Today is a critical day. The interim peaks since the April 23rd peak have been progressively lower but a three-point rally in the S&P 500 today would break that pattern:
April 23rd: 1217.3
May 12th: 1171.7
June 18th: 1117.5
July 26th: 1115.0
We should add that we are at a new post-April high in the Dow and the NYSE (the latter is not yet at the 200-day m.a.). We're not there yet on the S&P 500 or the Nasdaq (13 points off) but we are getting close. While everyone is fixated on the 200-day moving average, we add a note of caution: the S&P 500 breached that technical threshold for a good week back in April and those who dipped their toes into the risk pool got burned pretty badly (at least for the next two months).
Now Bernanke may not be the world's best forecaster – I don't know who is. But he has the deepest rolodex, more than any CEO. And when he deliberately says "unusually uncertain" to describe the economic outlook, I find it irrational to ascribe anything fundamental to this rally. I know where you are coming from but the market gets it wrong as often as it gets it right – it was wrong to forecast a recession in the fall of 1987, again in the summer of 1998 and again in the winter of 2003. It was wrong to forecast sustained growth in the summer of 2000, a recovery in the winter of 2002, an avoidance of recession in the fall of 2007 and the end of the downturn in the spring of 2008. It may be a discounting mechanism, but the stock market has a spotty record – let's remind ourselves of that.
THE HOUSING DATA ARE NOT SUPPORTIVE
Market sentiment is positive and as a result of the market going straight up, people believe that the economic data are somehow getting better. Not the case at all.
April new home sales were revised DOWN to a 422k annual rate from 504k when the data for the month were first released. You know what that means? It means that the homebuyer tax credit was even a bigger dud than we thought it was previously. No bang for the buck from these spending gimmicks.
May new home sales were revised DOWN to 267k units from 300k. That sure puts a 23.6% "jump" to 330k into perspective, doesn't it? It's called bear market math.
At 330k in June, this goes down as the second worst month on record (data back to January 1963). And in per capita terms it is far worse than that considering the population has expanded 63% since then.
Now, if we take the original unrevised number for April, the unrevised May data-point, and the June consensus estimate of 310k, then the average of the past three months would have been 371k. But post-revisions and with the actual June print, sales have averaged 340k at an annual rate. That puts the data into proper context. We are actually left with a weaker three-month profile of home sales after the release of the data yesterday, not the opposite. Also, it took a median of 12.4 months for the builders to locate a buyer upon completion – a record for June.
The unsold inventory number was also revised sharply higher in May and because of that, the backlog looks so much better now – from 9.6 months' supply to 7.6 months'. Even so, a well-balanced market, as any real estate agent will tell you, is 5-6 months' supply.
Maybe this is why the average sales price was cut 9.8% MoM in the third steepest month ever in terms of discounting. At $242,900 for an average price of a new home sold, this represented the lowest number since October 2003 and off 26% from the 2007 peak.
But just think about that for a second. The third largest price cut in history managed to generate the second worst new home sales tally on record. This is something to get excited about?
CHICAGO BEARS?
Meanwhile, the Chicago Fed released its monthly index of national economic activity and it fell sharply too in June to -0.63 (it peaked in March at +0.47) and this was the softest reading since last October. When this metric hits -0.70 (on the three-month trend), we are heading back into recession, so keep an eye on this one.
David A. Rosenberg
Chief Economist & Strategist Economic Commentary
drosenberg@gluskinsheff.com
+ 1 416 681 8919
Source: Market Musings & Data Deciphering
http://www.fmxconnect.com/
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