Mid-Day Recap: Stocks Flat After Weak Consumer Confidence Data

After an unexpected drop in consumer confidence spurred on a stock sell-off this morning, all three equity indexes are clawing their way back to unchanged.

As of 1:30 eastern, the S&P 500 is up 0.09% to 1,063, the Dow is trading 0.01% lower at 9,779, and the NASDAQ is 0.04% lower at 2,129.

Meanwhile, the dollar is up 0.07% against a broad set of currencies, while the yield on the benchmark 10-year Treasury is down four basis points to 3.29%.

Data this morning was mixed. The session began on an optimistic note after the S&P Case-Shiller Home Price index said prices went up in 18 of the 20 cities surveyed in July. Prices in 13 of the 20 metro areas have increased for three or more consecutive months, indicating that the deflationary spiral in the housing market has likely come to an end.

“House prices are stabilizing nationally and across the world,” said Patrick Newport from IHS Global Insight. “This synchronization indicates that low interest rates are helping to stabilize home prices worldwide.”

Overall, prices moved up 1.6% in July, suggesting that prior signs of stabilization were not just statistical blips. 

Looking into 2010, economists had mixed views on whether prices will continue to rise. Looming foreclosures have the potential to deflate prices further, and it’s not yet clear if demand for homes will hold up once government incentives expire, but low mortgage rates and a rallying financial sector provide some optimism.

Half an hour into the session, however, equity prices fell as the closely watched consumer confidence measure from the Conference Board dipped in September.

Forecasters believed the bull market would give a boost to the average consumer’s assessment of current conditions, while the 6-month expectations index was supposed to climb in line with signs that the recession was over. Instead, the job market dominated broad opinion and sent both components tumbling.

“Even though there are signs that the economy is beginning to recover in 3Q09, consumers remain uncertain about the future of the labor market, which is limiting the recovery of consumer confidence,” said analysts from BBVA. “Since confidence is an important factor in consumer spending, consumption is expected to remain low, in line with our baseline scenario for the second half of 2009.”

Talk of consumers cutting their expenditures helped to cause equity prices to fall in the minutes after the release.

However, fresh data for September showed that consumers haven’t yet stopped spending.

A report from the International Council of Shopping Centers said sales improved for the third straight week. More importantly, ICSC chief economist Michael Niemira said to expect “renewed hope, optimism and most-likely gift buying” for the upcoming quarter.

“Retailers will experience their first non-recession holiday season in three years, and economic growth is fundamentally on the mend, even though there will be lingering pockets of weakness,” he added.

In addition, chain store sales have risen 0.4% to date in September versus August, according to data from Redbook Research. 

“Several retailers suggested that the drop in temperatures this week may have provided the impetus they sought,” the report said.

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