Midday Maket Update: Real Estate Can’t Fuel Wall Street Rally

June 30th at 10:00am by Tom Lydon

Despite a little bit of optimism coming out of the real estate sector, U.S. stocks and exchange traded funds (ETFs) are still trading lower this morning after some gloomy news about how consumers are feeling these days.

The Standard & Poor’s Case-Shiller Index, which tracks home prices in 20 major U.S. cities, indicates that the decline in home prices is moderating.  The index showed that home prices fell 18.1% from April 2008, and its sister 10-city index fell by 18%.  April marked the third straight month both indexes didn’t set record price declines.  The news sent the iShares Dow Jones U.S. Real Estate (IYR) up 0.4% in intraday trading.

The Conference Board, an industry group, reported that U.S. consumer confidence fell in June, snapping a two-month rally.  The index of consumer attitudes weighed in at 49.3, a decline from the 54.8 it was at in May.  Additionally, the Present Situation Index slid to 24.8 from 29.7.  These declines are being caused by a weak job market and a less favorable assessment of business conditions, indicating that the overall economy remains weak.

On a different note, President Barack Obama stated that his Consumer Financial Protection Agency will protect Americans from unscrupulous practices and make financial products easier to understand, arming consumers with simple, transparent and accurate information on financial products such as credit cards and mortgages.  On top of this, the Obama administration is pushing to give the Federal Reserve expanded powers to serve as a systemic-risk regulator for the entire financial system and to boost government powers to wind down the nation’s financial institutions if they get in trouble.

Crude oil jumped to a hair over $73/barrel this morning, due to a weakening U.S. dollar and attacks on oil installations in Nigeria.  Despite this surge, the United States Oil Fund (USO) was down nearly 1.5% in morning trading.

It appears that fund managers seem to think that an economic recovery is on the near horizon as investor equity holdings rise to the highest level they have been at all year.  Based on a survey of 12 U.S.-based fund management firms, 62.5% of their assets are in equities, up from 61.6% the prior month.  Equities have started to become more appealing because of an increase in money supply, stabilizing unemployment claims, a bit of life in the housing markets, narrowing credit spreads and rising durable goods orders.

Overall, all three major U.S. indexes are down in morning trading with the Dow Jones Industrial Average leading the way posting a decline of nearly 1.1%, followed by the S&P 500 down about 1% and the Nasdaq dropping 0.5%.

Kevin Grewal contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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