Market Talk

Consumers don’t seem jazzed about this so-called second-half recovery everyone keeps talking about.

The Conference Board’s June consumer confidence reading of 49.3 fell well below economists’ expectations of 56.0. Consumer expectations for economic activity over the next six months also fell to 65.5 from 71.5

The decline in consumer confidence shows economic conditions are still weak, even if they aren’t as week as earlier this year, says Lynn Franco, director of the Conference Board Consumer Research Center.

“Looking ahead, expectations continue to suggest less negative conditions in the months ahead, as opposed to strong growth,” she says.

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US stocks end the quarter on a sour note, falling sharply after a disappointing consumer confidence report, and while the bulls tried to take some solace from the moderating losses in home prices as revealed by the Case-Shiller report – on a monthly basis – the yearly losses are still huge.

DJIA drops 82 (1%) to 8448, down 0.6% on the month but up 11% on the quarter. S&P 500 falls 8 (0.9%) to 919, Nasdaq Comp loses 9 (0.5%) to 1835.  Crude’s volatile today, trading anywhere from $73/barrel to $69, but it still tacked on a huge 41% gain in the quarter.

Today’s action seemed driven by traders who did all their so-called window dressing yesterday and Thursday, and today just booked profits. The Conference Board report, as those lesser economic indicators often are, was just an excuse to execute a trade.

Conference Board says consumer confidence dropped in June, which surprised the Street and isn’t so good for the green-shoots crowd. Of course, it’s not such a surprise if you’ve been watching the unemployment rate tick higher, or filling your gas tank at anything approaching a regular basis.

Case-Shiller report still shows severe yearly declines in home prices, down 18% nationwide. Consider that a few years ago, the idea of home prices falling at all was all but inconceivable, and you’ll see how far we’ve come.

Clock ticking on bond-fund investors?

Mutual-fund investors aren’t good market-timers, so it’s interesting to see they poured more than $31B into bond funds in May, the highest monthly amount seen by the Investment Company Institute in its data going back to 1984. That follows $28.5B inflow in April.

Retail fund investors have a track record of buying high and selling low — they committed record chunks of new cash to stock funds in early 2000 when markets were peaking, and similarly yanked massive amounts from stock funds in July 2002, just ahead of an eventual bottom a couple months later. Continue reading…

Hey, a year ago it was going for 20% more.

Housing prices keep falling, although the green shootists point out price declines continue to moderate.

US home prices fell 18% in April from a year earlier, but the S&P Case-Shiller home-price indexes showed their third-straight month of slightly smaller declines, suggesting the housing market is finally seeing signs of stabilization.

“It’s good news, though times will continue to be difficult in home markets for some time to come,” The Economist’s Free Exchange blog says.

But a large number of new purchases are foreclosures or distressed dales, blog notes, and markets with lots of existing inventory will continue to see downward pressure on prices.

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See that line on the horizon?

For equities, April was far from the cruelest month. In fact, it was the only good one they had in the second quarter. But in the two months since then, stocks have gone absolutely nowhere.

Unless the DJIA tumbles 12% today, it’ll close out 2Q with what look like very healthy gains. From March 31 to yesterday’s close, the Dow is up 12.1%. The headlines will all say “Dow Has It’s Best Quarter Since…” whenever (the stats group hasn’t given us that information yet.)

But all of those gains came in April. The run in stocks from the March lows to early May was basically straight up. Since then, it’s been a long, grinding ride sideways, leaving stocks little changed.

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Final session of 2Q today, and it’s been a pretty good one for US stocks. We’ll see in a few weeks how the period’s been for corporate earnings.

Companies have cut costs like crazy, and that’s great for the bottom line, but investors eventually need to see revenue growth as well in order to press stock prices higher.

Interesting to note massive amounts of cash flowing into bond funds this spring, with a record $31.65B into bond funds in May alone. Raise your antennae anytime you see retail investors moving that much money in one direction at the same time, since it’s been known to signal a top.

Case-Shiller April home price index due at 9:00am; Chicago June PMI at 9:45am ET; and Conference Board’s June consumer confidence reading at 10:00am.

S&P futures up 1.70; DJ futures up 13. Ten-year a shade higher, yield at 3.48%. Crude futures volatile, currently under $72/barrel but spiked up above $73 earlier; this time yesterday, they were under $70.

US stocks jump in thin trading, in the 2Q’s second to last day, as crude jumps back over $70 and Bernie Madoff gets 150 years (but, hey, he’ll be a free man in 2159.)

DJIA jumps 91 (1.1%) to 8529, S&P 500 gains 8 (0.9%) to 927, Nasdaq Comp adds 6 (0.3%) to 1844. Energy, consumer discretionary lead gainers, although it seems the latter is directly hurt by gains in the former.

Some of the gains at least are likely the so-called “window dressing” of fund managers looking to spruce up quarterly statements, although it seems like we had a lot of that last week. But unless the Dow loses 12% tomorrow, it will post very healthy gains in the 2Q. Whether it can sustain or build upon those gains is now the big question.

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And this, ladies, is the North Waziristan tribal region. One hot LZ.

Any concern for geopolitical risk seems to be missing from the US stock market. Come to think of it, it’s been gone for some time, replaced by a total fixation on the government’s attempts to stave off collapse of the financial system, and preoccupation with divining the exact time the recession will end.

Easy enough to understand that distraction – it’s hard to worry about international threats when a situation created within our own borders brought us to the brink.

But now that there’s at least some daylight between us and Armageddon, market’s aren’t paying much heed to saber-rattling in North Korea or Iran, or the trouble Pakistan’s having with the Taliban, for example. Continue reading…

It’s not surprising Fed chairman Ben Bernanke was grilled by lawmakers last week about his overall handling of the financial crisis, but some question whether the blasting was warranted.

The hostility Bernanke received shouldn’t shock anyone, Willem Buiter writes at FT’s Maverecon blog.

“Central banks and central bankers [have] become normal political actors, indeed partisan political actors,” he says. “They should not be surprised to be treated as such.”

It’s become “unavoidable, indeed desirable” that Bernanke’s role in the BofA/Merrill deal has become a big issue, he notes.

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The ferocious stock-market rally that saw indexes gain more than 30% in a three-month stretched has cooled in recent weeks. With the second quarter officially coming to an end tomorrow, the market is looking for actual growth to fuel a sustained recovery.

Unfortunately, that growth isn’t likely to come from the upcoming earnings season. From WSJ’s Ahead of the Tape column:

The current bull market has been fueled largely by wishful thinking. To go much further, some wishes need to start coming true.

Corporate earnings, for example, should recover one of these days. That day was likely not the second quarter, which ends on Tuesday. The season for reporting second-quarter profits starts next week , but companies might start preannouncing results soon. Wall Street analysts, on average, think earnings fell 34.9% year-over-year in the quarter, according to Thomson Financial.

First-quarter earnings beat expectations, but were still far down from a year earlier. Analysts don’t expect earnings to rebound until the fourth quarter. But stocks have risen in advance, which is not unusual.

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