MarketView for July 27

Summary 

The S&P 500 equity index broke its three day winning streak on Tuesday as a drop in consumer confidence took a toll on investor confidence. Nonetheless, solid earnings from DuPont, a component of the Dow Jones industrial average, and from Cummins, added a positive note to the day’s trading activity, but that in turn was offset by less than stellar comments from U.S. Steel and AK Steel.

DuPont provided the largest aid to the Dow after the company raised its forecast for 2010 earnings well above expectations, while Cummins also raised its full-year forecast. DuPont surged 3.6 percent to $40.38, and Cummins gained 2 percent to $79.43. However, the steel industry reported a considerably less rosy picture, with AK Steel stating that it was cutting production capacity to match weak demand, while U.S. Steel reported a net loss that missed Wall Street's expectations. AK Steel lost 4.7 percent to $14.49 and U.S. Steel gave up 6.4 percent at $45.76.

As a result, the S&P closed just below its 200-day moving average after crossing above it on Monday. While the failure to hold above the level was a potentially bearish signal, the fact that it ended so close to the level made it less negative. From a technical viewpoint, the index's 14-day moving average line crossed over its 50-day moving average, creating a so-called "golden cross" that indicates positive short-term momentum.

Meanwhile, the day’s economic data was mixed. Home prices were higher during the month of May, but labor-market worries took July consumer confidence to its lowest since February. Consumer discretionary shares leading the parade downward.

Consumer confidence fell in July to its lowest point since February, hurt by worries regarding the job market, according to a report from the Conference Board, a private research group.

Consumer Confidence Lower Despite Higher Real Estate Prices

Employment concerns sent the July consumer confidence numbers to their lowest level since February, with one in six people expecting to see a decline in their income over the next six months. You could say that if you were a pessimist that data of this nature could add to your concerns as to the just how precarious the economic recovery actually is.

Home prices rose in May but display no signs of a sustained rebound as long as unemployment remains as high as it currently is and a record stockpile of foreclosed houses remains in inventory. Prices for single family homes remain 29.1 percent below the peak level of four years ago, according to a Standard & Poor's/Case-Shiller index.

The Conference Board reported that consumer attitudes grew more negative this month as did the negative expectations regarding the difficulty in obtaining employment.

"Concerns about business conditions and the labor market are casting a dark cloud over consumers that is not likely to lift until the job market improves," said Lynn Franco, Director of The Conference Board Consumer Research Center.

The group's index of consumer attitudes fell to 50.4 in July from an upwardly revised 54.3 in June. Meanwhile the data for "jobs hard to get" reading, meanwhile, rose to 45.8 percent from 43.5 percent.

Consumer sentiment fell to a nearly one-year low in July on renewed fears about economic stability, according to the Thomson Reuters/University of Michigan's Surveys of Consumers earlier this month. The final data will be reported on Friday.[nN16126985]

Meanwhile, single-family home prices rose more than expected in May, but reflecting the strong sales of last Spring that were supported to some degree by the now-expired homebuyer tax credits, the S&P/Case-Shiller home price indexes showed. May is a strong seasonal period for home sales, and buyers who rushed to sign contracts by the April 30 deadline for up to $8,000 in tax credits have until September 30 to close loans.

Seven of the 20 largest metro areas still reported lower prices than a year ago and most economists predict further single-digit declines before any sustained upturn. A record inventory of foreclosed properties further threatens prices.

"For me, a double-dip is another recession before we've healed from this recession ... The probability of that kind of double-dip is more than 50 percent," Robert Shiller, professor of economics at Yale University and co-developer of the price index told Reuters.

The 20-city composite price index in May rose 0.5 percent, seasonally adjusted, after an upwardly revised 0.6 percent gain in April. The index was 4.6 percent above last May, S&P said. Prices jumped 1.3 percent on an unadjusted basis after a 0.9 percent April gain and falls in the six prior months.