Markets were reluctant to move yesterday once again as mixed economic data provided no definite clue to the investors about what awaits them ahead of Ben Bernanke’s speech at Jackson Hole on Friday. While the Dow and S&P 500 ended with paltry losses, Nasdaq managed to edge up with minute gains. As investors speculate about what Bernanke will have to say about the state of the economy and whether he wishes to initiate further economic measures, volumes continued to be low.
The Dow Jones Industrial Average (DJI) slipped 0.2% and ended at 13,102.99. The Standard & Poor 500 (S&P 500) ended hardly changed, dropping a meager 0.1% to close at 1,409.30. The tech-laden Nasdaq Composite added 0.1% and finished yesterday’s trading session at 3,077.14. The fear-gauge CBOE Volatility Index (VIX) was up 0.9% and settled at 16.49. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and the Nasdaq were roughly 4.6 billion shares, sharply lower than the year-to-date average of 6.6 billion shares. Advancing shares moved past the decliners on the NYSE; as for 54% stocks that gained, 41% closed lower.
Two key economic reports, one about consumer confidence and the other on home prices, came out yesterday and sent out mixed signals. While consumer confidence data was dismal, the home prices report was encouraging. In the process, the markets hardly moved.
The Conference Board reported that the Consumer Confidence Index dropped from 65.4 in July to 60.6 in August. This comes after a gain in July and the index was also way below consensus estimates of a reading of 66. It is also the index’s lowest level in nine months. The Director of Economic Indicators at The Conference Board, Lynn Franco, commented: “A more pessimistic outlook was the primary reason for this month's decline in confidence. Consumers were more apprehensive about business and employment prospects, but more optimistic about their financial prospects despite rising inflation expectations”. Meanwhile, the Expectations Index declined from 78.4 to 70.5 and the Present Situation Index was almost flat at 45.8.
However, the negative sentiment arising out of this report was somewhat offset by the strength in the Standard & Poor's/Case-Shiller home price data. According to the report, the S&P/Case-Shiller 20-city composite index registered a yearly gain of 0.5% in June 2012. On a month-on-month basis, the 20-City Composite gained 2.3%. The report noted: “All three headline composites ended the second quarter of 2012 with positive annual growth rates for the first time since the summer of 2010”.
This data lifted the housing sector and the SPDR S&P Homebuilders (XHB) added 0.2%. Among the housing stocks, Lennar Corporation (NYSE:LEN), Hovnanian Enterprises, Inc. (NYSE:HOV), PulteGroup, Inc. (NYSE:PHM), NVR, Inc. (NYSE:NVR) and The Ryland Group, Inc. (NYSE:RYL) added 0.8%, 1.9%, 0.3%, 0.7% and 0.4%, respectively.
Moreover, the investors’ wait-and-watch attitude continued as Federal Reserve Chairman Ben Bernanke’s speech at Jackson Hole is scheduled on Friday. Investors are eagerly waiting to hear what Ben Bernanke has to say about the economy and measures to boost it. The run up to this speech on Friday has seen decent volatility. Thus, the speech has gained all the more importance and all eyes are fixed on it now.
Talking about the run up to the speech at Jackson Hole, the minutes from the Federal Open Market Committee’s (FOMC) meet that was released last week suggested that “many members” were in favor of additional measures. However, St. Louis Fed President James Bullard created uncertainty about additional economic stimulus arriving anytime soon just a day after. He said the present economic situation does not warrant the need for QE3.
In fact, quiet a number of investors now are of the opinion that Bernanke might not be coming up with anything grand now. Strategists note that a big move by the central bank is less likely now and they will continue to interpret the economic readings for future action.