Monthly Market Monitor - July 2010

Markets Stall as Uncertainty Takes Hold
The Dow Jones Industrial Average dipped below 10,000 in June, a mark that it breached only briefly in both February and May of this year. Both of those periods were followed by short rallies, but this time might be different. In a sign that risk aversion is returning, yields on 10-year Treasury notes fell below 3% to their lowest level in several months. Yields move in the opposite direction from prices, so lower yields mean that prices were moving up as investors sought out the safety of Treasuries. Although consumer spending has generally exceeded expectations during the economic recovery, it appears as though consumers are not quite as optimistic recently. The Conference Board, a non-profit research group, reported that consumer confidence fell to 52.9 in June, down from 62.7 in May. The number is derived from a sample survey of 5,000 U.S. homes.

Going forward, investors are likely to be focused on the upcoming earnings season in July as a large number of companies report results from the second quarter. Some strategists suggest that continued earnings growth will be enough to reverse recent market declines. According to Standard and Poor’s, consensus estimates for S&P 500 earnings in 2010 are $81.73 per share. This equates to a P/E ratio of slightly less than 13 based on a closing price of 1041.24 for the S&P 500 on 6/29/10. Those analysts with a more positive outlook point out that valuations are reasonable at current levels. Others, however, think that earnings estimates are overly optimistic and will eventually be revised downward. The coming earnings season will provide valuable information as to who is right.

Some Positive Housing News
Recent data from an S&P/Case-Shiller home price report showed price gains in many markets. The index as a whole, which covers 20 major cities, rose 4%. But prices were up even more in several areas. For example, San Diego, one of the harder hit areas during the bust, saw prices rise 12%. Some strategists, however, point out that the home buyer tax credit temporarily boosted housing demand, and thus prices.

The news on foreclosure remains gloomy. The Federal Reserve recently reported that 33% of all subprime mortgages were at least 90 days delinquent. In some of the larger states, that number is even higher. Florida (48%), New York (39%), and California (38%) are all above the national average.

1. Wall Street Journal, 07/01/10

The views are those of Cameron Lavey, Senior Investment Analyst, Research Department/Cetera Financial Group, and should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.

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