Daily Market Reports | May 20 2009
By Greg Peel
The Dow fell 29 points or 0.3% while the S&P fell 0.2% and the Nasdaq rose 0.1%. The Dow fell back below 8500 but the S&P closed at 908.
It was a volatile session at the micro level given the indices crossed their flatlines several times. It was nevertheless a quiet day in the macro level given the Dow fell no lower than down 41 and rose no higher than up 32. Volume was once again light.
But the VIX volatility index broke through 30, falling 4.8% to 28.80. This is the first measure in the twenties since September – before Lehman. Pre-Lehman a measure of 10-20 was considered to be complacency territory but some traders are concerned that post-Lehman, a 20-30 range is already low enough to possibly suggest over-enthusiasm. The less put option protection the market buys, the more vulnerable it becomes to any new downward shocks.
Not that Wall Street isn’t looking bullet proof at the moment. Last night saw the release of the April housing start numbers. Economists were expecting a net increase in the number of single-family homes and multi-family apartment blocks commencing construction in April to an annualised rate of 519,000, but a fall to 458,000 represented a 12.8% plunge to the weakest number since records began being kept in 1959. Housing starts are now 80% below their peak in January 2006. Building permits – the step before construction and thus a lead indicator – fell 3.3% to be down 42.3% for the year.
Pre this rally, numbers such as these would have sent Wall Street spiralling down. But in the new era of silver linings, Wall Street was able to extract a positive side yet again.
While the ongoing slowdown in construction is bad for the building industry, bad for building material suppliers, bad for jobs and bad for the economy in general, one factor that has continued to depress this market is the extent of existing home overhang. There is over a year’s worth of inventory for sale on the market as foreclosures take their toll. New home construction only adds to that inventory. If fewer homes are being built, existing inventory can be cleared faster.
It’s great news after all!
Moreover, while the net figure was a 12.8% fall, starts of single-family homes actually rose 2.8%. This has to be positive, hasn’t it? Never mind that apartment starts fell 46.1%.
There was also confusion provided by home improvement leader and Dow component Home Depot. On Monday night, Wall Street’s charge had a lot to do with a less-worse than expected result from Home Depot’s competitor Lowe’s, such that all building-related stocks went flying. Lowe’s provided better than expected second quarter guidance and spoke of a recovery. Last night Home Depot also posted a less-worse than expected result (and a profit increase no less) but warned that its markets are still under pressure. So the market sold its shares down 5%.
While on the Dow component front, Hewlett Packard’s after-the-bell result has seen its shares fall 5% in the after-market. Bank of America shares closed at US$11.25 last night but the bank announced a capital raising after the bell at US$10.00, sending the shares down 4% in the after-market.
There was actually some good news out of Europe. After having posted a woeful first quarter GDP figure last week, Germany received a kick last night on the release of its ZEW economic index. The index measured 13 in April but economists were expecting a lift to 20 in May. The number came out at 31, sending the DAX (German stock index) up 2.2% and the euro higher against the US dollar.
The dollar thus began the New York session weaker but was checked by the housing numbers, which sent a few nervous investors scurrying back to the safety of US Treasuries. The Aussie still managed to climb almost a cent to US$0.7754, but after falling out of favour in yesterday’s stock market rally, gold came back with a US$8.20 jump to US$925.00/oz.
The weak US dollar also saw oil passing the US$60 mark once again, but the housing start figures also checked oil’s progress. It closed up US62c to US$59.65/bbl.
There was very little action in base metals in London at the close, with early gains on the US dollar also trimmed. The only stand-out was a fall of 1.5% in aluminium.
The SPI Overnight fell 2 points.
