Gloomy jobs, home data stoke selling
Small-cap stocks took a hit Thursday, snapping a string of four consecutive winning sessions with a resounding downside spiral as dreary economic data and lousy corporate profit reports triggered a wave of selling. The Russell 2000 (NYSE:IWM) tumbled 19.78, or 4.18%, to 453.24, and is now down 9.2% for the year. The Dow is now down 7.1% for 2009, while the S&P 500 is off 6.4%.
Just one day after generating the second-biggest rally of the year, the Russell slumped to the third worst daily decline, reminiscent of the roller coaster ride surrounding the Obama inauguration, which saw the best and worst days of 2009 in back-to-back fashion. It has become a familiar and uncomfortable trendless volatility as the market waffles between bargain hunting and renewed dread about the worst economic recession since the Great Depression 70 years ago.
Today’s big event was a trio of economic reports that stood to remind us all that even though data might be a “lagging” indicator for stocks, when the numbers get numbingly awful, the confidence to shrug them off starts to wane. This morning saw weekly unemployment claims rise to 588,000, which was slightly above the forecast. But it wasn’t the weekly figure that was troubling, it was the number of Americans forced to file for continuing unemployment benefits because they can’t find a job. That number swelled to 4.77 million, the highest number on record. There are now more people than ever before forced to draw unemployment insurance, and we’re supposedly not yet at the worst of the jobs situation.
“In addition to staggering layoff announcements in January across a wide spectrum of firms, the actual number of folks filing for unemployment insurance climbed 3,000 during the week ended Jan. 24. Continuing claims, which lag initial claims by one week, advanced to 4.776 million and the insured unemployment rate increased to 3.6%, which is a cycle high from 3.4% in the prior week. The January employment report is likely to show a grimmer picture of the labor market compared with the December data,” Asha Bangalore, economist with Northern Trust, said in an email.
And while the weekly claims report alone was an uncomfortable piece of data, there was no relief to be found in the monthly durable goods report or the latest reading on new home sales. Durable goods orders declined for the fifth consecutive month, and at a larger pace than expected; but the real downer was the new home sales report, which tumbled 14.7% to an annual rate of 331,000 – way below the forecast of 400,000. Just how bad are things right now on the new home front? This was the worst figure in more than 40 years of data compilation. There are many who say that the housing crisis started this whole mess and we won’t pull out of the abyss until the housing market turns around. Today’s report on new home sales certainly wasn’t a turnabout for the better.
The gloomy economic reports overshadowed corporate profit reports, but those were primarily downbeat today anyhow. Among the big-name dour results were AllState Corp. (NYSE:ALL), down 20%; Black and Decker Corp. (NYSE:BDK) off 18% and Fortune Brands Inc. (NYSE:FO) off about 10%.
Given the sloppy picture on new home sales, homebuilders large and small were pummeled today. Small-cap homebuilder Meritage Homes Corp. (NYSE:MTH) plunged about 11%, while KB Home (NYSE:KBH) and Centex Corp. (NYSE:CTX) both fell about 8%.
And it wasn’t like short-term traders could park money in Treasury markets today to avert the selling wave. Today was simply a seller’s market. Stocks were down, Treasury markets were down, crude oil was down, commodities were down – there was no place to hide. Crude oil prices closed down 1.7%, losing $0.72 a barrel, to $41.44 and energy stocks lost about 3%. The yield on benchmark 10-year notes, which moves inverse to price, rose a whopping 6.8% on the day to about 2.84% as the flood of supply to fund all these stimulus programs and bailout endeavors threatens to choke demand.
The chart picture did an about-face Thursday, rejecting Wednesday’s apparent upside breakout in commanding fashion. The market remains in a long-term sideways consolidation, subject to disconcerting headfakes and volatility in the meantime … not exactly a painless foundation building process, especially for those tossed about on the short-term reversals. Looking ahead to Friday’s session, the market will have another buffet of economic reports to digest, the biggest of which should be the GDP report ahead of the opening. Back to the charts, the inability to hold above the breakout point at 466 means the upside target of 499 on the breakout is now moot. A weekly close above 450 will once again be the focal point unless the bulls come back charging Friday.
