Thursday, October 1, 2009

Markets tumble into the new quarter

Stocks began the new quarter on defense. Dow dropped 141 (& slipping), decliners over advancers 4-1 & NAZ fell a big 47. Banks suffered, hurt by the resignation of Ken Lewis at B of A (BAC), a Dow stock, & thoughts about his reign especially in the last 2 years. 2 years ago they raised their div to a record $2.56. They were very proud of their 30+ year track record of raising divs because of their growth record (a Dividend Aristocrat then). Now those thoughts are just history.


% Change

MLPs began Q4 weak along with the general market. The Alerian MLP Index fell 2+ to the 247s, 250 continues to be a major barrier. The Dow Jones REIT Index fell a big 4 to the 164s (approaching a 10% decline from its recent peak). Junk bond funds were trading sideways at their yearly high levels. Money form selling high yields is going into Treasuries. The yield on the 10-year Treasury bond dropped 7 basis points to 3.24%, lowest yield since May. Risk averse is coming back into play.

Oil & gold opened Q4 by slipping pennies, hardly worth a mention. Oil is about 70, the middle of its trading range, while gold is just over 1K

Alerian MLP Index --- 3 months

Dow Jones REIT Index --- 3 months

10-Year Treasury Yld Index - 6 months

Initial claims for unemployment rose to 551K from 534K in the prior week. This increase comes after 3 weeks of declines, discouraging to say the least. Weekly claims have been trending down since the spring, but at a very slow pace. The 4-week average dropped to 548K (about 110K below its peak in early Apr). It is believed that initial claims below 400K would be a signal that employers are adding to net total jobs. The number on the rolls, meanwhile, fell 70K to 6.1M, the lowest level since early Apr. Some left the rolls because benefits have run out. The large number remaining on the rolls indicates unemployed workers are having a hard time finding new jobs. Tomorrow the big monthly unemployment report will be released.

US Initial Jobless Claims Rose 17,000 to 551,000

Weekly jobless claims 12 months

The Institute for Supply Management’s (ISM) factory gauge decreased to 52.6 from 52.9 in Aug (50 is the dividing line between expansion & contraction). The ISM index was forecast to rise to 54. The graph below shows the trend for the last 12 months.

U.S. Manufacturing Expands at Slower Pace Than Estimated, ISM Index Shows

Factory Gauge -- 1 year

Pending sales of U.S. homes rose sharply in Aug, for a 7th consecutive month of gains, reaching the highest since March 2007 (shown in the graph below). The index, based on contracts signed, was up 6.4% to 103.8, the longest consecutive month-on-month gain in the history of the series (which began in 2001). The index rose from 97.6 in Jul & is 12.4% above Aug 2008's depressed level of 104.5. Buyers are returning to sign contracts, but deals are not necessarily closing due to long delays.

Pending Sales of Existing Homes in US Rose 6.4% in August

Change in contracts to buy homes -- 1 year

On balance, today's economic data gives more gloomy statistics. Yes, the economy is recovering, but at a plodding pace. Unemployment is probably the most important statistic & there is no reason to expect that will get better anytime soon. Dow had its best qtr in 11 years, truly an outstanding performance (shown below). But it ended on a sour note which continues in Q4.

Bloomberg has excellent graphs showing economic trends. I will be adding more in the future.

Dow Jones Industrials --- 3 months

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