Stocks are set to end the quarter on a sour note thanks to an unexpected decline in consumer confidence. In spite of today's weakness most global markets have produced one of their best quarterly gains in years. Investors are trying to digest a plate full of economic data with the Chicago PMI, consumer confidence numbers, home price index, and a look at unemployment. Meanwhile the U.S. dollar is bouncing and crude oil futures are selling off following yesterday's big rally.
Asian markets were mixed again. Japan was a bright spot with the NIKKEI index gaining almost 1.8%. The NIKKEI briefly touched the 10,000 level again for the first time in two weeks. The NIKKEI is up 23% for the second quarter, which is its best performance since 1995. Investors will be eager to see the quarterly Bank of Japan "Tankan" business sentiment survey tomorrow. Jumping across the Sea of Japan and the Korean peninsula the Chinese Shanghai index ended a four-day winning streak with a 0.5% decline. The Shanghai is up more than 60% for the first half of 2009. Sliding down toward the southern edge of China the Hong Kong Hang Seng has turned in a 35.4% gain for the quarter marking its best quarterly gain in 15 years. The Hang Seng lost 0.8% closing out the quarter. The Hong Kong market will be closed tomorrow to celebrate the anniversary of the territory's return from British rule to China's.
A soft day in Europe got a lot worse after the U.S. consumer confidence numbers were released. Investors were already dealing with news that England's first quarter GDP growth in the first quarter was revised down from -1.9% to -2.4%, which was the fastest decline in decades. Granted it's old news at this point but it doesn't inspire investor confidence. Meanwhile the annual consumer price inflation for the 16-nation euro zone came in negative for the first time on record. The ECB's target rate for the CPI is just under 2%. The June reading came in at -0.1% but this was actually better than the -0.2% estimate. Japan is already trying to ward off deflation (again) and now we have hints of deflation in the U.S. and now Europe. The English FTSE lost 1%. The French CAC-40 lost 1.6%. The German DAX gave up 1.5%. All three markets gave up the majority of yesterday's gains.
The big story here at home was the Conference Board's consumer confidence survey. Economists were expecting consumer confidence to rise to 55.5 in June following a big gain in May to 54.8. Instead confidence slipped to 49.3. Looking inside the survey the present situation component fell from 29.7 to 24.8, the number of consumers that felt jobs were hard to get rose from 43.9 to 44.8, and the future expectations component fell from 71.5 to 65.5. Falling consumer confidence is bad because the theory suggests that a worried consumer spends less. More than 2/3rds of the U.S economy is powered by the consumer.
One reason why consumers are worried is the lack of recovery in the housing market. The S&P's/Case-Shiller home price index was released today. The 20-city price index fell 18.1% in April. Year over year this was actually an improvement since prices fell 18.7% in March. The pace of decline is certainly slowing but home prices are still declining. Thus far the 20-city index is off about 33% from the peak in 2006. The DJUSHB home construction index is off 1.2% on the session.
The Labor Department released some unemployment details this morning. Unemployment for large U.S. cities jumped again for the fifth month in a row. Out of 49 metro areas the government said unemployment increased for all but 3 of them. Denver and Minneapolis saw unemployment stay unchanged while the Buffalo, NY area saw unemployment fall from 8.5% to 8.3%. These numbers don't bode well for the ADP employment report tomorrow or the official non-farm payrolls report due out on Thursday. If the jobs report on Thursday disappoints stocks could sell-off sharply.
In other economic news the Chicago PMI report came in better than expected. Economists were looking for a rise to 39.0%. The results were a jump from 34.9% in May to 39.9% in June. Numbers under 50% still represent a contracting economy or business conditions but the trend is showing a bounce. This could be a good sign for the national ISM index due out tomorrow.
Currently the S&P 500 index is set to deliver its best quarterly gain since 1998 but today the index is off 1.3% at 915. It looks like the index is trying to bounce off its intraday lows. The NASDAQ composite is down 0.88% and near the 1825 level. The Dow Industrials are down 1.29% and testing the 8400 level and technical support at the rising 50-dma. The Russell 2000 index is down 0.4% and hovering near 509. The worst sectors today appear to be financials, airlines, and the gambling stocks.
Let's take a quick look at charts for the major averages:
Chart of the S&P 500:
Chart of the NASDAQ:
Chart of the Dow Industrials:
Chart of the Russell 2000 index:
Scanning the OptionInvestor.com play list I see that ACL is off 1.4% but still above support at the $115 level. Traders are buying the dip in BDX with shares bouncing from their intraday lows. CVD is showing some relative strength with a 0.75% gain. DECK is testing round-number support near $70.00. DGX is hitting new relative highs over $56.00. LLL, an OI put play, is rolling over under its 10-dma with a 1.6% decline. WYNN, another OI put play, is down 4.6% and nearing the $35.00 level.