US Equities Robust Despite Poor US Housing Data

Posted on | December 29, 2009 |

US equities made decent gains at the start of trading today, despite flat American housing data.

An official government report released this afternoon has revealed that home prices across 20 US cities were flat in October, dashing hopes for a sixth straight monthly increase and casting some doubt over the market’s ability to sustain the recent progress.

Although the S&P/Case-Shiller home-price index fell short of Reuters expectations for a 0.2% rise, September’s figures were revised to show a seasonally adjusted monthly gain of 0.4% as opposed to an originally reported 0.3% rise. In addition, the year-on-year decline of 7.3% narrowed from a revised annual drop of 9.3% in September, suggesting the overall trend is still stabilising.

‘The report signals that we have a growing stabilisation in house prices. Obviously it’s at a very slow pace and that is because the market is still saddled with a significant amount of inventory,’ explained Anna Piretti, a US economist at BNP Paribas.

‘We’re likely to see some negative cross currents come into home prices in November, but that doesn’t really change the trend – the trend should be toward stabilisation.’ [1]

President Barack Obama and Congress recently approved the extension of a tax credit for first-time homebuyers. The incentive, which has been moved from November 30 to April 30 2010, is likely to continue supporting the US housing market.

Meanwhile, a separate report showing better-than-expected US consumer confidence figures boded well for equity market sentiment. The Conference Board’s consumer sentiment index rose to a reading of 52.9 in December from a revised 50.6 the prior month. That beat Reuters expectations for a rise to 52.5.

By 3.40pm (London time), the Dow Jones Industrial Average traded 23.88 points (+0.23%) higher at 10570.96 while the broader S&P 500 was 1.42 points (+0.13%) higher at 1129.2. In the meantime, the technology-based Nasdaq Index was 2.06 points (-0.11%) in the red at 1876.12.

US retail shares were en vogue this afternoon, after online retailer Amazon had its price target upped by two brokers today. Kaufman Bros raised its price target on the company’s stock by nearly 30% to $155 while Piper Jaffray upped its target on Amazon 5.5% to $172 a share. Their upgrades come after Amazon announced that sales of Kindle digital books outpaced sales of physical books on Christmas Day. [2]

Amazon’s share price climbed 0.6% to $140.1 while Wal-Mart Stores edged 0.3% higher to $54.12.

Mining shares were also on an uptrend, with Freeport-McMoRan Copper & Gold up 1% to $82.62 on the back of higher copper prices. Copper traded at a 15-month high today, as investors speculated that a strike at the Chuquicamata copper mine in Chile, the world’s second-largest, may restrict supply of the industrial metal.

Source: [1] Reuters News (29 December 2009)
Source: [2] Financial Times (29 December 2009)

By Anthony Grech - Reseach Analyst, IG Index.

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