Market Commentary

As noted many times transitions are always volatile.
February 24, 2010

As noted many times transitions are always volatile.  Yesterday’s data was evidence to this point.  Consumer confidence was weaker than expected but the S & P Case Shiller Home Price Index was stronger than the consensus view.  I would like to address the former as it was this data point that influenced yesterday’s trading.

Consumer Confidence plunged in January by 10.5 points to a month low of 46.0 [vs. an expected 55.0 reading] reflecting big declines in both the current conditions and outlook components.  The current conditions gauge fell to a 27 year low of 19.4.  I wonder how much the severe winter weather and the climate in Washington has to do with this dour outlook. 

I must remind all that consumer confidence is the ultimate feedback indicator offering little predictive qualities as it only tells us where we have been not where we are going.  Close to cycle highs were made in October 2007 and March 2000.  Close to cycle lows were achieved in September 2001 and February 2009. 

Regarding homes prices the 20 city Case Shiller Home Price Index representing the largest metropolitan areas in the US rose for the seventh consecutive month rising by 0.3% in December.    The latest data left the annual drop for all of 2009 at 3.1%, versus an 18.6% drop on 2008 and a 9.1% decline in 2007.  The index is 29% below its 2006 peak.  December’s annual drop was the smallest year over year decline since May 2007.

Speaking of homes, New Home Sales are released today.  November and December’s data fell rather dramatically, the result of the acceleration of sales that occurred before the cessation of the home buyers tax credit.   Considerable attention will be focused on new home inventories and the corresponding equivalent ratio.

Inventories have declined for a record 32 consecutive months going from 548K to 231K, the fewest since the 1971 inception of this data point.  Regarding the inventory to sales ratio, this key indicator also has trended lower and now stands around 7 months, down from a cycle high of 13 months but still about 3 months above the level deemed as healthy.

Obviously the I/S ratio is dependent upon sales data which is often volatile and subject to large revisions.

Consensus is estimating 354K sales and a 3.5% increase over the December rate.

What will happen today?   As noted yesterday FRB Chairman Bernanke starts his two day Congressional Testimony at 10:00.  Obviously his statements can and have moved markets.

Last night the foreign markets were mixed.  London was up 0.37%, Paris up 0.18% and Frankfurt up 0.18%.  Japan was down 1.48% and Hang Sang down 0.75%.

The Dow should open flat ahead of Bernanke’s Congressional Testimony.  The 10-year is off 4/32 to yield 3.70%.

10-year is up 6/32 to yield 3.77%.