Friday, October 24th Market Update

Friday: 10/24/08 10:30 AM EDT :
Stocks opened down sharply, following the lead of overseas markets as pessimism over global economic conditions deepens. The retreat from risk benefiting Treasuries and yields are lower across the maturity spectrum, though a round of profit-taking has trimmed earlier price gains.

Bearish sentiments are also being reflected in the commodities market and oil futures are steeply lower despite a production cut announced by the Organization of Petroleum Exporting Countries (OPEC).

Asian stock markets closed sharply lower. The Japanese Nikkei index finished down by 9.60% and Hong Kong's Hang Seng index closed with an 8.30% loss. European markets are currently down as well. In recent trading, the British FTSE index was off by 6.74%, the German DAX by 7.68%, and the French CAC-40 by 6.16%. All three had been even lower earlier.

Helping to stir up the current wave of economic anxiety was negative earnings guidance from Sony, Toyota, and Daimler, and news that Britain's economy shrank by a larger than expected 0.5% in the third quarter.

But the domestic economic release of the day was actually much more bullish than expected. The National Association of Realtors reported that the seasonally adjusted, annualized rate of existing home sales rose by 5.5% last month to 5.18 million from August's rate of 4.91 million. The increase was the largest since February of 2006 and the pace was the highest since August of last year.
The bulk of the increase came in the West where the rate rose by 16.8% in September, the largest increase in the region since January of 2002. The Midwest saw an increase of 4.4% and the rate rose by 2.2% in the South. Only the Northeast saw a contraction with a decline of 1.2%.
Inventories of homes on the market (adjusted, annualized) fell by 1.6% to 4.266 million. At the prevailing sales pace, this represented 9.9 months of sales, the lowest turnover time since February.

Though more home buying activity is a plus for the economy, it also reflects the weakened state of the housing market since the pickup in pickup in buying interest was prompted by a sharp decline in home prices. The average price fell by $10,700 in September or 4.4% to its lowest level since April of 2004.

The median price was down by $11,500 or 5.7% to its lowest level since February of 2005. On a year-over-year basis, the average home price was down by $22,600 or 8.8% and the median price was down by $18,900 or 9.0%.

The declining prices are due to lack of demand and from the increase in inventories earlier this year. The lower home values decrease personal wealth, further dispiriting consumers who are also watching their stock investments plummet.

Stocks are also feeling pressure in the financial sector. Insurance giant, American International Group (AIG) said that it has now borrowed more money from the government than the total in the original bailout package. And bank consolidation continues as PNC Financial Services Group intends to buy National City Corp.

In other news, OPEC announced in Vienna today that it was cutting its production limit beginning in November by 1.5 million barrels per day in an effort to support crude prices. Prices have fallen by over 50.0% since they peaked in early July. But despite the news, in recent trading, the price of a barrel of crude oil was down by $3.47 at $64.37. It had been down by over $4.00 earlier, however.