A larger number of eyes were looking at regional Fed surveys this week, due to the weaker-than-expected Philadelphia Fed number from last week. The Richmond Fed index fell more than expected, from +14 in April to +4 in May, as shipments fell; however, employment rose strongly.
Durable goods orders were generally in line with consensus for April—up +0.2% on the month. However, the goods orders less transports (aka ‘key components version’) was weaker than anticipated (down -0.6% versus a forecast +0.8%). ‘Core’ orders, which excluded non-defensive items and aircraft fell by almost 2%. These figures are poorer, not dramatically so, but still point to a possible soft spot in economic growth during the past few months.
Existing home sales rose +3.4% for the month of April, to 4.62 million units, which was a small surprise (but tempered by some revisions down for earlier months, causing the three-month moving average to stay roughly flat). As it turned out, 28% of April’s existing home sales were of the distressed variety (as in foreclosures and short sales), which happens to be the lowest percentage since Oct. 2008. Home sales prices were also up to a +10.1% year-over-year rate to a median price of $178,000 (interestingly, on a seasonally-adjusted basis of +6.0%, this increase was the largest one-month move in the history of the series which began in 1968). The seasonally adjusted inventory of single-family homes moved upward a bit from 6.3 to 6.6 months (7.6 months is the long-term, multi-decade average).
New home sales rose by +3.3% for April to a level of 343,000 units (annualized), which surpassed analyst expectations. The months’ supply of homes remained at 5.1 (low). The FHFA house price index rose +1.8% month-over-month, which represented another small surprise of a percent and a half or so. Housing numbers, especially on a monthly basis, are very inconsistent—while the one-month surprises are nice, the longer-term trend is much more important.
Initial jobless claims came in at 370k on the May 19 week, which was spot on with the expected number. Continuing claims for the May 12 week fell 29k from the week prior to 3,260k—in line with expectations largely.
Lastly, the University of Michigan Consumer Confidence gauge improved from 76.4 in April to 79.3 in May, which was much higher than forecast and is now sitting at its highest level since October 2007. Respondents’ assessment of current economic conditions was improved compared to April and inflation expectations were lower generally.
Consumer confidence appears to reflect general (but slow) improvements in the U.S. economy, including employment and conditions in housing that appear a bit less depressing (assuming a lack of severe further price deterioration is considered ‘better’). The positive story is that the European back-and-forth has appeared to have a limited impact on Americans’ day-to-day lives, from a sentiment standpoint, aside from adding additional market volatility.
Market Notes
| Period ending 5/25/2012 |
1 Week (%) |
YTD (%) |
| DJIA |
0.73 |
3.11 |
| S&P 500 |
1.77 |
5.70 |
| Russell 2000 |
2.59 |
3.96 |
| MSCI-EAFE |
-0.37 |
-2.60 |
| MSCI-EM |
-0.49 |
-1.56 |
| BarCap U.S. Aggregate |
-0.18 |
1.76 |
| U.S. Treasury Yields |
3 Mo. |
2 Yr. |
5 Yr. |
10 Yr. |
30 Yr. |
| 12/31/2011 |
0.02 |
0.25 |
0.83 |
1.89 |
2.89 |
| 5/18/2012 |
0.08 |
0.32 |
0.75 |
1.71 |
2.80 |
| 5/25/2012 |
0.09 |
0.30 |
0.76 |
1.75 |
2.85 |
Stocks recovered a bit on the week despite continued mixed U.S. data and concerns over Europe. Small-caps led large-caps. From a sector perspective, materials and consumer discretionary led the way, and the defensives of health care, telecom and utilities lagged the index. Domestic stocks outgained foreign stocks, which ended up negative on the week. At week’s end, it was reported that Bankia, Spain’s third largest bank, will require additional aid although the government insisted additional Euro support will not be needed (we’ll see). Also, Japan’s sovereign debt rating was reduced to A+ with a negative outlook, due to high levels of overall debt (over 200% of GDP). Unsurprisingly, the U.S. situation looks rosy by comparison.
Bonds were generally flattish to slightly lower on the week, although corporates were generally a few basis points worse off than governments and domestic debt outperformed foreign with a rising dollar.
Commodities were largely negative on the week as quite a few of the agricultural commodities adjusted lower (about -5%) from gains the prior week. Energy and industrial metals were down, but at a more tempered pace. Commodity markets were focused a bit on the Iran talks in Baghdad, in addition to possible repercussions of European issues that continue to undermine confidence. Oil has corrected by over 15% during May alone. While this sharp drop doesn’t make oil companies happy, it should take some of the heat off of consumers. Impacts here are not always immediate, but, if sustained, can have a tendency to filter their way through to confidence surveys, etc. if consumers feel less pressure generally.
Have a goodweek.
Karl Schroeder, RFC, CSA, AACEP
Investment Advisor Representative
Schroeder Financial Services, Inc.
480-895-0611
Sources: FocusPoint Solutions, Barclays Capital, Bloomberg, Deutsche Bank, Goldman Sachs, JPMorgan Asset Management, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Thomson Reuters, Schroder’s, Standard & Poor’s, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research. Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends. Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.
The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product. Schroeder Financial Services, Inc. is a registered investment advisor.