Long Road Ahead - October 28th, 2009

Housing data today was a big disappointment, paving the way for a potential holding pattern in the markets as this new data is balanced against the news that unemployment may be easing. Earnings are still rolling in, but are about half-over at this point leaving less to focus on as the market tries to digest the latest round of selling pressure. Another run at 1100 for the S&P is likely to come eventually, but strength above that level will not come easily.

Today’s new home sales data from the Commerce Department showed a 3.6 percent decline at 402,000 units. The Briefing.com survey pointed to expectations of around 440,000 units – loftier than the actual report.1 This follows a downward revision for the previous month, not a positive note for the housing sector. Real strength and recovery in housing data separate from government stimulus and tax breaks is likely a long way off.

On the earnings front, it feels as though a lot of data is already priced into the market. As previously mentioned, the bar appeared to have been set quite low this time around. That can put a damper on the celebration even when some companies beat expectations. Revenue growth is still going to be important and right now it doesn’t look like sales are improving. Without any big surprises from the balance of earnings still to be reported, it seems unlikely that the market will find the driver it needs to move higher.

The S&P has taken that step towards 1100 three times without being able to maintain a foothold. A move higher in the US dollar coupled with that bad debt lurking in banks’ books, and financials are feeling the pressure. The credit crisis could be under control at this stage, but it is hardly over. The cold reality of that could drive the broader market lower, especially if the US dollar rally continues.

1 http://money.cnn.com/2009/10/28/real_estate/new_home_sales_September/index.htm?postversion=2009102810