By Carlos Guillen
Equity markets continue to slide as the economic data points on display this morning failed to inspire investors that are fixated on the fiscal cliff and on Europe.
Quite discouraging this morning was that jobs data for the week landed much worse than expected. According to the Labor Department, initial claims during the week ended November 10 totaled 439,000, increasing from the 361,000 revised figure reported for the prior week and landing above the Street's estimate of 388,000. The sharpest rise in the initial claims since April 2011 put the initial claims' four-week moving average at 383,750, increasing from the prior week's average of 372,000. Clearly, the storm that we experienced a couple of weeks ago had a negative effect on the data, leaving many out of work. However, the loss of power prevented many from actually making the necessary claims during the week of the storm, which in turn could cause an avalanche of claims in the following week as reflected by today's result.
On another negative note, manufacturing in the New York region contracted this month for the fourth consecutive time. According to the Federal Reserve Bank of New York, its Empire Manufacturing index decreased this month to minus 5.2 from the minus 6.2 reached in October; however, the reading was better than Street's consensus of minus 8.5. Given that readings greater than zero signal expansion, this month's result makes four straight months of contraction in the region that covers New York, northern New Jersey, and southern Connecticut. This data was also affected by super-storm Sandy, which knocked out electrical power and limited activity in the region.
Perhaps a bit encouraging today was that increases in the cost of living appeared to be under control this past month. According to the Labor Department, the Consumer Price Index (CPI-U) increased month-over-month by 0.1 percent in October, landing in line with the Street's estimate of 0.1 percent. Concurrently, excluding the food and energy contributions to inflation, core CPI increased 0.2 percent, above the Street's estimate calling for a 0.1 percent increase. An implication of this rather tame inflation rate is that it continues to give the Fed room to execute its quantitative easing plan to fuel the overall economy.
As the second half of the trading session unfolds it appears that equity markets have stabilized but are still in losing territory, with the Dow Jones Industrial Average in the red by over 30 points. So far resistance at the 12,000 level has not been breached, so there is a bit less risk of sinking further, but with investors still concerned about rising taxes on investments, the likelihood of stocks sinking further is still significant.
Following yesterday's strike by Israel against Hamas leaders, the situation really heated up some more around a quarter to noon this morning, and that took the market from bad to worse. All of a sudden there are a few things happening at once in the region, and it's all looking like more than the usual scrappiness. For the second day in a row, Israel is sending out rocket strike videos that show missiles striking Hamas targets in Gaza, while at the same time Israeli troops are gearing up to take this conflict into a ground war.
It really got bad when air raid sirens went off in Tel Aviv, which is apparently the first time this has happened since 1991. Reports are coming in of rocket explosions in the areas outside of Tel Aviv.
The market really could do without the prospect of instability in the Middle East, and this was certainly one factor in yesterday's selloff as well. This very conflict rears its head all the time and usually blows over but we have to say this time it looks bigger. Only thing we can do here is watch how it plays out; and of course, seeing as the USA is technically an ally of Israel knock on wood that it cools down before it gets to the point where we have to get involved. Beyond that, we're not going to try to speculate what may happen.
Homeowners Still Swimming
This morning, Zillow's (NASDAQ:Z) negative equity report was released, and it showed that the trends in housing continue to improve. In the third quarter of 2012, home values showed the biggest quarterly gain since 2006. National home values appreciated 1.3% from Q2 to Q3 2012, with much of that appreciation focused in hard-hit areas like Arizona, Florida and California. However, the Fiscal Cliff and all the banter risk derailing the bounce in home prices. According to the third quarter Zillow Negative Equity Report, 28.2% of U.S. homeowners with a mortgage (roughly 14 million people) were underwater in the third quarter of 2012. Approximately one third of all homeowners do not have a mortgage and own their home free and clear.
In total, underwater homeowners owe $1.02 trillion more than their homes' worth. More than 42% of underwater homeowners (11.9% of all homeowners with a mortgage), owe 20% or less than their home is worth. On average, U.S. homeowners in negative equity owe $73,163 more than their house is worth, or 42.5% more. While roughly a quarter of homeowners with a mortgage are underwater, 90.3% of these homeowners are current on their mortgage and continue to make payments. This stat shows that most of the people that couldn't afford their homes have already been foreclosed upon. One of the biggest complaints about the housing initiatives that were instituted by the government was directed at the fact that people that were underwater but were making their payments should have been the first ones helped by HAMP and the other programs the government instituted to help bounce back from the crash in housing.