Stocks were down as much as 100 DJIA points in the first hour of Tuesday’s trading, but by the close the market averages had modest gains. The session’s lows in stock prices came shortly after the Conference Board released its consumer confidence survey results for August, which showed confidence at its lowest level since April 2009 – i.e., just four months before the recession ended. Consumer expectations tumbled from an index value of 74.9 in July to 51.9 in the latest month, a 31% decline and the biggest drop since the Lehman-default-related drop in October 2008. This low ebb in confidence stands in contrast to the July consumer spending report issued by the Commerce Department yesterday, which showed the biggest bounce in spending in 17 months. The cratering of consumer sentiment this month is likely the result of the sharp downward spike in stock prices in early August; to the extent that prices have rebounded roughly 9% off their lows, consumer psyches have probably improved some. (Nonetheless, barring a big move on the final day of the month, August will be the worst month for the stock market since June 2010.) Still, the weekly same-store sales numbers reported by ICSC-Goldman Sachs suggest that August is trending lower. In any case, Hurricane Irene is likely to have distorted late-month sales – probably lower still.
The minutes of the Fed’s last FOMC meeting were released today, and the hint that committee members considered adding more assets to the Fed’s balance sheet seemed to buoy stock prices. The S&P 500 added upwards of 1% following the release of the FOMC minutes before paring the rebound by about half in the final half hour of trading. Today being Tuesday, Treasury bonds were up strongly in price, reversing Monday’s declines. The 10-year Treasury added two-thirds of a point today, its yield ending at 2.18%. The long Treasury tacked on nearly a point and a half in price today. Gold spurted $46 to $1838, and crude oil climber about 1.5% to $88.75 a barrel, its highest level since August 3, and copper was similarly higher, at $4.13 a pound. In other words, the price of virtually every asset class was higher Tuesday – the day was neither risk-on nor risk-off, in the common parlance – although the VIX volatility measure did tick a bit higher. Home price estimates released today showed prices rising in 19 of 20 major U.S. cities, but it is difficult to make much more of this upturn than the stereotypical “dead-cat bounce.”
INVESTMENT OUTLOOK…The July-August breakdown in stock prices may be signaling a recession ahead. We believe, as the Fed’s Ben Bernanke does, that that eventuality is still avoidable. But if recession does become more likely, we suspect that Federal Reserve monetary policy and possible fiscal measures will be brought to bear in opposition to recessionary forces. There are certainly legitimate reasons to be concerned about near-term economic prospects, and market volatility has yet to show any real sign of normalizing. Nonetheless, corporations have demonstrated an ability to grow their profits in such an environment, and we believe that there are opportunities for long-term investors in today’s equities market, especially at the lower, more attractive prices that the recent market correction has indiscriminately produced.
Copyright © 2011 by Wright Investors’ Service, Inc. The views expressed in this blog reflect those of Wright Investors’ Service, Inc. and are subject to change. Statements and opinions therein are based on sources of information believed to be accurate and reliable, but Wright Investors’ Service, Inc. makes no representations or guarantees as to the accuracy or completeness thereof. These views should not be relied upon as investment advice