Market Commentary

Stocks rebounded nominally yesterday
January 26, 2010

Stocks rebounded nominally yesterday as the market was more convinced that FRB Chairman Bernanke re-nomination will be confirmed.  There was also renewed optimism about earnings.  Of the 62 S & P 500 companies that have posted results, 46 were better than the average estimate as per Bloomberg.

Yesterday existing home sales (EHS) were released falling a disappointing 16.7% as the rush from the first time home buyers credit earlier in the fall depleted sales in December.  However sales have rebounded significantly from the lows from last January-March, greatly reducing inventories.  About a year ago the inventory to sales ratio was a catastrophic 11.2 months down to 6.5 months today.

For all of 2009, EHS rose 4.9% to 5.16 million units.  The median price however was down 12% from 2008, the biggest annual drop on record since the Depression.  In December however the median value in December rose 1.5% from the same month in 2008, the first such increase since August 2007 and the biggest since May 2006.

Has housing turned?  All know 2009 was a terrible year for housing.  Some are suggesting much of the same for 2010 because of foreclosures; a foreclosure rate some suggest will be around 2009 level of 2.9 million units.

Personally I do not agree with this view.  First I believe we are through the apex in foreclosures as I believe both jobs growth and the economy will grow at rate faster than most expect.  Second is the decline in inventories.

The number of existing home for sales actually declined by 7% and if sales do accelerate midway between today’s and early fall levels, the inventory to sales ratio would decline from today’s 6.5 months to around 4 months.  A three month supply of EHS is deemed healthy.

What will today’s release of the S & P/CaseShiller Price Index suggest?  Year over year the 20 city survey is expected to post a 5% decline in prices.  Month over month, prices are estimated to rise by 0.30%.

Today is also the start of a two day FOMC meeting.  All are expecting the overnight rate to remain unchanged in the 0.0%-0.25% range while continuing to state how the it will ease off the proverbial quantitative easing (QE) gas pedal.

Last night the foreign markets were down.  London was down 0.12%, Paris down 0.15% and Frankfurt up 0.04%.  Japan was down 1.78% and Hang Sang down 2.38%.

The Dow should open moderately lower over concern that China’s move to curb lending will stifle global growth.  This fear is overshadowing positive earnings.  The 10-year is up 12/32 to yield 3.58%.