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U.S. stocks shake off bad news on durables and wait for tomorrow to show how many hundred billions of euros Europe's banks will borrow
02/28/2012 3:18 pm EST
First up, durable goods orders fell 4.0% in January. A big part of that came from a drop in aircraft orders, but even excluding transportation new orders for durable goods fell 3.2% in January. Economists had expected that durable goods orders including transportation would fall by 1.4%, according to a survey by Briefing.com, and that orders excluding transportation would actually increase by 0.2%. Durable goods orders increased by 3.2% in December.
Next up, home prices in 20 U.S. cities fell by 4% in December 2011 from December 2010, according to the S&P/Case-Shiller index. Home prices had dropped 3.9% in November. Economists surveyed by Bloomberg were looking for a drop of 3.7%.
I think you can make an argument for not paying a whole lot of attention to the durable goods orders figures in January. An accelerated depreciation tax credit expired in January and produced a drop in demand for capital goods—the stuff that companies use to make other stuff—of 4.5%. Some of that drop was undoubtedly the result of companies moving orders from January into December in order to catch the tax break. It’s hard to argue a strong trend in one direction or another from the January durables numbers, optimists might suggest.
And the market seems to be taking the continued decline—at least the rate of decline isn’t getting worse--of housing prices in stride. We’re near a bottom in this sector but exactly what month will mark the bottom is tough to predict seems to be the prevailing attitude. The only significant reaction I’ve seen on the housing numbers this morning comes from a few analysts who have downgraded housing stocks such as Lennar (LEN) or DR Horton (DHI) on valuation after their strong rally in January and February.
But I think the real story behind the market’s ability to rally in the face of this bad news is a belief that these pieces of economic news represent old news. They’re about the economy in December (home prices) and January (durables.) They therefore are less important to stocks going forward that the increase in the Conference Board’s index of consumer confidence for February, which jumped to 70.8 from just 61.5 in January. Economists surveyed by Briefing.com had expected the index to inch up to 62.5 in February.
And finally, there’s the most forward looking news of all—tomorrow’s announcement of how many hundreds of billions European banks will have borrowed from the European Central Bank under its newest three-year lending facility. A big uptake is predicted—and the feeling is that all this cash will make Europe’s financial system a much less dangerous place in the months ahead.
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