Stocks and investors have proven to be surprisingly resilient despite a litany of alarming events that have triggered global uncertainty. It’s amazing that the markets are not lower than they are currently considering…
- Conflict in the Middle East – Egypt and then Libya
- Surging oil prices
- Japanese earthquake and tsunami
- Subsequent Japanese nuclear crisis
- Renewed European debt worries
- Very disappointing home sales in the U.S.
These events have dampened, but not broken investor optimism. The return of skepticism, though, might be a good thing as sentiment measures have dipped to more reasonable levels. The latest survey now has 50.6% of advisors in the bullish camp, down from a high of 58.8% last December, while the American Association of Individual Investors, in their weekly poll, shows bulls down to 38% versus over 63% in December.
The Fed & Rates:
Overshadowed by the events elsewhere, the Federal Reserve announced in mid-March its decision to keep interest rates unchanged. The Fed offered an upgraded view of the economic recovery by stating that it was on “firmer footing” than previous assessments, however, they’ve not indicated that they intend to raise rates at all for the foreseeable future.
Housing…it actually can get worse:
Contradicting the Fed statement, was this week’s release of housing data. New home sales plunged 16.9% in February to a record low annual rate of 225,000 units. The figure was well below the 290,000 rate forecasted by economists and the lowest since records began in 1963. An annual sales rate of 700,000 is considered by analysts as a threshold for a healthy housing market…so we’re still 475,000 off the mark! Median prices fell 13.9% to $202,100 in February from $234,800 in January. It was the lowest median home price since December 2003 when homes sold for $195,000. Sales declined in every region in the country with the Northeast taking the biggest hit as sales plunged 57.1% to only 1,000 new homes sold. Based on February’s sales pace, the supply of new homes on the market rose to 8.9 months from 7.4 months in January. There were only 186,000 new homes for sale in February, the lowest supply since 1967.
Stock Markets:
In the face of this preponderance of negative news, the Dow is only 220 points away from breaking through its February 18th bull market highs. The recent setback saw the Dow lose 777 points, -6.28%, in 17 trading sessions. Since then, the Dow has rebounded 567 points, +4.8%, and in the process moved back above its 50-day moving average. Most of the key indices have joined the Dow above their respective 50-day lines. According to the technitians among us, the markets appear poised for a breakout.
Well, the market might not be out of the woods, but it certainly has taken a big step in the right direction. The CBOE Market Volatility Index, VIX, is once again under its 50-day moving average which had contained it since last October except for four trading sessions during the most recent selloff. As the market continues to rally, we would like to see an expansion in the number of 52-week highs. The inability of the new high list to expand in recent weeks has been one of the telltale signs of the market’s deeper weakness.
Bond Markets:
Over the winter, many bonds were hurt due to several factors we’re mentioned previously. For interest rates, we’re seeing short term Treasuries trading at support levels of 3.75%. Long-term Treasuries have found support at about 4.25%. This means that we may see continued price stability, if not for some degradation of the longer term interest rates (flattening rate spreads between the 10-Year & 2-Year Treasuries). We still favor corporate bonds of both, investment grade and some higher yield, as well as well analyzed municipal bonds. The sweet spot seems to still be in the A/BBB range with durations in the 5-7 year range.
As always, please let us know if you have any questions or comments. We encourage participation in discussions!
Tags: housing data, market sentiment, Market Update, stock market update, stocks making comeback
This entry was posted
on Friday, March 25th, 2011 at 6:09 pm and is filed under Investing, Market Commentary.
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Markets Bounce Back – Q2 Quick Update
Stocks and investors have proven to be surprisingly resilient despite a litany of alarming events that have triggered global uncertainty. It’s amazing that the markets are not lower than they are currently considering…
These events have dampened, but not broken investor optimism. The return of skepticism, though, might be a good thing as sentiment measures have dipped to more reasonable levels. The latest survey now has 50.6% of advisors in the bullish camp, down from a high of 58.8% last December, while the American Association of Individual Investors, in their weekly poll, shows bulls down to 38% versus over 63% in December.
The Fed & Rates:
Overshadowed by the events elsewhere, the Federal Reserve announced in mid-March its decision to keep interest rates unchanged. The Fed offered an upgraded view of the economic recovery by stating that it was on “firmer footing” than previous assessments, however, they’ve not indicated that they intend to raise rates at all for the foreseeable future.
Housing…it actually can get worse:
Contradicting the Fed statement, was this week’s release of housing data. New home sales plunged 16.9% in February to a record low annual rate of 225,000 units. The figure was well below the 290,000 rate forecasted by economists and the lowest since records began in 1963. An annual sales rate of 700,000 is considered by analysts as a threshold for a healthy housing market…so we’re still 475,000 off the mark! Median prices fell 13.9% to $202,100 in February from $234,800 in January. It was the lowest median home price since December 2003 when homes sold for $195,000. Sales declined in every region in the country with the Northeast taking the biggest hit as sales plunged 57.1% to only 1,000 new homes sold. Based on February’s sales pace, the supply of new homes on the market rose to 8.9 months from 7.4 months in January. There were only 186,000 new homes for sale in February, the lowest supply since 1967.
Stock Markets:
In the face of this preponderance of negative news, the Dow is only 220 points away from breaking through its February 18th bull market highs. The recent setback saw the Dow lose 777 points, -6.28%, in 17 trading sessions. Since then, the Dow has rebounded 567 points, +4.8%, and in the process moved back above its 50-day moving average. Most of the key indices have joined the Dow above their respective 50-day lines. According to the technitians among us, the markets appear poised for a breakout.
Well, the market might not be out of the woods, but it certainly has taken a big step in the right direction. The CBOE Market Volatility Index, VIX, is once again under its 50-day moving average which had contained it since last October except for four trading sessions during the most recent selloff. As the market continues to rally, we would like to see an expansion in the number of 52-week highs. The inability of the new high list to expand in recent weeks has been one of the telltale signs of the market’s deeper weakness.
Bond Markets:
Over the winter, many bonds were hurt due to several factors we’re mentioned previously. For interest rates, we’re seeing short term Treasuries trading at support levels of 3.75%. Long-term Treasuries have found support at about 4.25%. This means that we may see continued price stability, if not for some degradation of the longer term interest rates (flattening rate spreads between the 10-Year & 2-Year Treasuries). We still favor corporate bonds of both, investment grade and some higher yield, as well as well analyzed municipal bonds. The sweet spot seems to still be in the A/BBB range with durations in the 5-7 year range.
As always, please let us know if you have any questions or comments. We encourage participation in discussions!
Tags: housing data, market sentiment, Market Update, stock market update, stocks making comeback
This entry was posted on Friday, March 25th, 2011 at 6:09 pm and is filed under Investing, Market Commentary. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.