The U.S. market opened lower this morning following what many investors felt was a disappointing speech by President Obama last night. The market has been craving details about the administration's plan to solve this financial crisis and last night did not deliver any. The sour mood was compounded by some depressing home sales numbers out this morning. The Dow Jones Industrial Average (DJIA) fell to an intraday low of 7,156 but not enough to test the lows from Monday and Tuesday near 7,100.
The National Association of Realtors reported that January existing home sales fell 5.3% to a 12-year low sales rate of 4.49 million homes. Nationwide prices were down almost 15% year over year and the median price of a home had fallen to $170,300. Foreclosures are crushing the market with nearly 45% of homes on the market are "distressed sales". That means they're either bank repossessions or they are short-sales. A short-sale occurs when the owner is trying to sell it for less than what they owe on the property.
I heard the term "shadow inventory" while researching the home sales figures today. This is suggesting that the number of homes available for sale is a lot larger than what is currently on the market. Where is this inventory? The banks have been holding on to foreclosures and just sitting on them with plans to put them on the market later. Maybe it was a move to cut back on expenses during the normally slow holiday season. Maybe it is hope that the real estate market will rebound this coming spring and summer and they'll be able to recoup a little more of their losses. One thing is for sure; this coming spring is going to see a massive flood of homes on the market. Hopefully the Obama administration will have their housing plan ironed out and we'll have some low mortgage rates to fuel some buying.
One of the surprises in today's market is the strength in semiconductors. The SOX index is up 1.8% in spite of an analyst report out this morning that said chip sales will struggle for years. Gartner Inc. shared their forecast that semiconductor sales will not return to 2008 levels until 2013. Gartner expects 2009 to be an extremely tough year with sales crashing somewhere in the -24% to -33%. The industry group pointed to the 2001 recession and noted that it took years before chip sales returned to 2000 levels.
Crude oil was another sector in rally mode today - well at least the commodity. Oil stocks were mixed but April futures oil contracts were up sharply with a 5% gain to over $42 a barrel. The weekly inventory report showed that inventories only rose by 700,000 barrels and not the 2 million barrels that analysts had expected. Fanning the flames for oil's rally today was news that gasoline consumption in the U.S. was ticking higher. The USO oil ETF is up 5.2% at $25.73. The DXO is up 5.8% to $2.18.
Fed chairman Ben Bernanke completed his second day of testimony and questioning before Congress today. After he was done the market began to bounce but that bounce is failing. The DJIA is now down 125 points at 7226. The NASDAQ Composite is down 1.7% at 1417. The S&P 500 index is down 1.7% at 760.
Chart of the DJIA:
Chart of the NASDAQ:
Chart of the S&P 500: