Consumer confidence is improving and home prices are actually increasing, leading markets to push higher on Tuesday as investors feel more confident that the economy could experience a broad-based rebound.
At the 3-hour mark in today’s session, the Dow is trading 1.04% higher at 9,607, while the S&P 500 is up 1.01% at 1,035, followed by a 1.00% gain in the Nasdaq to 2,038. Since a 2009 low on March 10, the S&P has seen a rapid 51% climb.
The day’s optimism began half an hour before the open when the S&P Case-Shiller index said home prices had moved upwards by 1.4% in June, following an unexpected 0.5% increase in May.
With 18 of the 20 metropolitan areas advancing, the annual decline was -15.4%, in contrast to expectations of a -16.5% figure. The record decline was back in January when the annual drop was -19.2%.
“The year-on-year declines are still gruesome,” said Patrick Newport from IHS Global Insight. “However, these declines are misleading. They reflect price declines that happened months ago. Recently, prices have turned around.”
Any skepticism that the data was merely a blip was tempered when, an hour later, the Federal Housing Finance Agency also reported that prices had moderated in June. The FFHA Home Price Index said prices were down 5% since last year, compared with -5.6% in May.
The trend is what matters here ― the actual numbers differ because the two reports measure different data. “The FHFA measure is derived from conforming conventional mortgages, whereas the Case-Shiller considers a broader spectrum ― they pull data right from the county offices,” explain analysts at BMO. “Also, the Case-Shiller measure is value-weighted (FHFA is equally weighted) so more expensive homes have a bigger impact on the index.”
Also at 10:00, the a measure of consumer confidence edged up higher than analysts were expecting, led by a 10-point rebound in consumer expectations.
The Conference Board index climbed to 54.1 this month, after moderating to 47.4 in July. The Expectations component improved to its highest reading since December 2007 at 73.5, while the Present Situation index inched up 1.6 points to 24.9.
“In recent months we were troubled by the fact that leading indicators of the economy were improving but consumer confidence appeared to be re-weakening; today’s confidence lift helps to reconcile this difference,” said Joseph LaVorgna, chief US economist at Deutsche Bank. “In fact, we expect it to continue as the labor data become less negative through H2.”
Outside of markets, the major economic headline this morning is that President Obama re-appointed Ben Bernanke as chairman of the Federal Reserve.
"Ben approached a financial system on the verge of collapse with calm and wisdom ― with bold action and outside-the-box thinking that has helped put the brakes on our economic free fall," Obama said from Martha’s Vineyard, Mass.
Bernanke, who stood beside Obama during the announcement, issued a brief statement as well.
“Mr. President, I commit today to you and to the American people that, if confirmed by the Senate, I will work to the utmost of my abilities ―with my colleagues at the Federal Reserve and alongside the Congress and the Administration ―to help provide a solid foundation for growth and prosperity in an environment of price stability.”
It’s extremely unlikely that the Senate won’t confirm Obama’s choice.
Christopher Dodd, chairman of the Senate Banking Committee, commented: "While I have had serious differences with the Federal Reserve over the past few years, I think reappointing Chairman Bernanke is probably the right choice."
