Tuesday, May 31, 2011

Stock markets climb on hopes for another European bailout

Dow rose 64 (half its advance at the earlier highs), advancers over decliners 5-2 & NAZ added 16. Bank stocks led the way up, but are also off their highs of the day.

S&P 500 FINANCIALS INDEX

Value	212.11
Change	1.06 (0.5%)

The Alerian MLP Index is up a fraction in the 367s, but has done little in May after plunging at the start of the month. The REIT index rose 2 to the 248s, just below its 2011 high of 250. Junk bond funds were mixed to lower, still near or at post recession highs. Treasury yields are at 5 month lows & the yield on the 10 year bond may be testing the 3% level soon. Oil climbed, trimming the biggest monthly drop in a year, on signals the European Union will approve aid for Greece. Gold was up a tad & has done well in May, a tough month for other markets.

JPMorgan Chase Capital XVI (AMJ)

Treasury yields:

U.S. 3-month	0.046%
U.S. 2-year	0.472%
U.S. 10-year	3.060%

CLN11.NYM

...Crude Oil Jul 11

...102.71

...

2.12

(2.1%)

GCM11.CMX

...Gold Jun 11

.....1,538.90

...

2.60

(0.2%)

Consumers are losing faith that the economy will keep improving. The Conference Board's Consumer Confidence Index fell to 60.8 from a revised 66 in Apr on worries about jobs & inflation for groceries & gasoline, significantly under expectations for an increase to 67. Results from the survey have been choppy in recent months, rising in Apr but falling in Mar. Before that, the measure had risen for 5 consecutive months & hit a 3-year high in Feb. The index is still far from the reading of 90 that indicates a healthy economy which hasn't been approached since the recession began in Dec 2007. The Conference Board says dimmer expectations of business & job conditions 6 months from now were behind the decline.

Consumer Confidence Slumps to 6-Month Low

Photo: Yahoo

Home prices in major areas have reached their lowest level since the housing bubble burst in 2006, driven down by foreclosures, a glut of unsold homes & the reluctance or inability of many to buy. Prices fell from Feb to Mar in 18 of the metro areas tracked by the Standard & Poor's/Case-Shiller 20-city index, prices in a dozen markets have reached their lowest points since the housing crisis began. Prices in Mar rose only in the Seattle & Washington, DC metro areas (no recession in DC). The nationwide index fell for the 8th straight month. A record number of foreclosures are forcing prices down, & they are expected to keep falling through this year. The 12 cities now at their lowest levels in nearly 4 years are: Atlanta, Charlotte, Chicago, Cleveland, Detroit, Las Vegas, Miami, Minneapolis, New York, Phoenix, Portland, Ore., & Tampa. Some of the worst declines in home prices are in cities hit hardest by unemployment & foreclosures, such as Phoenix, Tampa & Las Vegas. In the 7 years before its peak in July 2006, the home-price index surged 155%. Since then, it's fallen 33%.

Home Prices in 20 U.S. Cities Fall to 8-Year Low

EU leaders will decide on additional aid for Greece in Jun & have ruled out a “total restructuring” of the nation’s debt according to euro-area finance ministers. Inspectors from the EU, the IMF & the European Central Bank (ECB) will wrap up a review of Greece’s progress in meeting the terms of last year’s €110B ($158B) bailout in the next few days. Then the EU will formulate its plan for further aid to Greece. Under the terms of the rescue package, Greece was due to return to financial markets & sell about €30B of bonds next year. With its 10-year bonds yielding 16.4%, the EU has indicated Greece will need more aid to plug its financing gap. The IMF has threatened to withhold its share of the payments until the EU explains how Greece will be funded. If, as expected, it turns out that Greece isn’t meeting the program’s conditions, euro-region countries must determine what steps Greece can undertake to get back on track in addition to what it’s doing already. EU & ECB officials remain divided over how to aid Greece.

Greek Aid Package to Be Decided by June

Stock markets aren't really doing all that much, but the whiff of another bailout for Greece is enough to bring out buyers. The consumer confidence data today is not encouraging for the US economy & its message is similar to other reports about a recovery that is sputtering. When compared to past recoveries, this one is not does not get high marks. In particular, high unemployment dragging on along with a housing market that shows no signs of recovery are holding back stock markets from further advances. Presently Dow is down over 300 in May, less bad than last May but not encouraging for Jun. Plus the outcome for Greek debt remains fuzzy.