Intraday Market Update
The S&P 500 futures gained +8 points overnight, reaching a high of 1,098, but have since been sent back to reality in early trading this morning. The ES futures collapsed -17 points from the overnight highs before paring some of its losses, and have now flat lined heading into the FOMC announcement at 2:15 PM EST. A record plunge in new homes sales is exacerbating yesterday's terrible existing home sales report. Risk aversion is apparent and money is flowing into the "safe haven" US Treasury market as the benchmark 10-year yield is nearing 8 month lows. So far the SPX is hanging on to its 20-day SMA near 1,090, which also corresponds to prior resistance in late May.

New home sales fell more than expected, plunging -32.7% (m/m) in May to an annual rate of 300,000 units. Expectations were for a decline of -18.7% to 410,000 units. Sales were down across all regions and the annual rate is the lowest since records began in 1963. The median sales price of new homes sold in May was $200,900 while the supply of new homes for sale was 213,000 units. This represents a supply of 8.5 months at the current sales rate. New home sales reflect contacts signed and since the deadline to qualify for the homebuyer tax credit was April 30, this was the first look at housing demand without the help of government stimulus.

Mortgage activity also declined and was led by a -7.3% dip in refinancing applications, despite the fact that 30-year mortgage rates fell -7 bps to 4.75%, which is the lowest rate since May 2009. After rising for the first time in six weeks last week, purchase applications resumed their decline with a -1.2% drop. The housing sector is clearly in trouble and it appears there is nothing the government can do about it this time around.

In equities, Carmax (KMX) is up +9% after beating earnings estimates. On the conference call executives said that consumers are still nervous about doing anything that requires taking out a loan and that demand is not back to pre-recession levels. Jabil Circuit (JBL) is up +10% after beating earnings and offering upbeat guidance. Raymond James cut their price target on the company to $18 from $21 but it is not affecting the stock. Red Hat (RHT) is up +2.7% after reporting and guiding in line.

Trading should remain quiet heading into the FOMC announcement. There are no major changes expected but look out for knee jerk reactions in both directions.


Core Sector List:
Overall reading: 11 sectors declining, 5 sectors advancing
Strongest Sectors: Home Construction, Semiconductors, Biotechnology
Weakest Sectors: Utilities, Software, Broker Dealers

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