Better Hiring Outlook Increases Consumer Confidence

Americans' confidence in the economy jumped this month, helped by a better outlook for the job market and expectations for higher pay.

The Conference Board, a New York-based private research group, says its consumer confidence index rose to 68.1 in April. That's up from a reading of 61.9 in March, which was revised slightly higher.

Consumers' confidence in the economy is watched closely because their spending accounts for about 70% of U.S. economic activity.

The April gain in confidence was driven by greater expectations for growth in hiring and income over the next six months.

Despite several brief spikes, the confidence index remains well below the 90 reading that indicates a healthy economy — a level it hasn't reached since the Great Recession began in December 2007.

Home Prices Up 9.3% in
12 Months

U.S. home prices in the USA's 20 biggest cities rose 9.3% in the 12 months ending in February. It was the biggest annual growth rates in almost seven years, a closely watched housing index out said.

The home price increases were solid across all 20 cities measured by the Standard & Poor's/Case-Shiller index. The 9.3% gain was up from an 8.1% year-over-year gain in January.

From January, prices rose 0.3% in February for the 20-city composite of the USA's largest metropolitan housing markets. In eight of the 20 cities, prices dipped slightly from January but all posted increases when compared to their year-ago levels.

Price increases are being driven by increased demand, a tightening inventory of homes for sale and fewer foreclosed properties, which tend to sell at a discount to others.

"Housing continues to be one of the brighter spots in the economy," said David Blitzer, chairman of the index committee.

But there's increasing concern that robust price increases are not sustainable, and that what's happening in the large metros is not broadly reflective of the national housing market.

"This report needs to start being taken with a grain of salt," says Stan Humphries, chief economist at real estate web site Zillow. The cities measured are "overly skewed" to quickly rebounding markets – particularly in the Southwest and on the West Coast, he says.

The index returns are also being boosted by a shift in transactions away from foreclosure re-sales, which are lessening, Humphries says.

On a seasonally adjusted basis, prices rose 1.2% in February from January. At that pace, the gain exceeds the average month to month gain during the years leading up to the housing bust, says Jed Kolko, Trulia chief economist.

He says it’s not a bubble -- yet. Big price gains from low price levels, which are what we have now, are very different than big price gains from high price levels, which is what occurred before the bust.

Year over year, Phoenix continued to stand out with a gain of 23%, followed by San Francisco at almost 19% and Las Vegas at nearly 18%, the S&P/Case-Shiller index showed. Most of the cities seeing the biggest gains also fell hardest during the crash.

Three East Coast cities -- New York, Boston and Chicago -- saw the smallest year-over-year price improvements.

And other housing market indicators are suggesting a slowdown in home sales and price gains.

Zillow's first-quarter home value index was up 0.5% from the fourth quarter of last year. That compared with a 2.1% jump in the fourth quarter from the third, Zillow's index showed, marking the smallest quarter-to-quarter gain since the home price recovery began.

A home value index produced by John Burns Real Estate Consulting shows national prices up 5.7% in the first quarter of 2013 over the first quarter of 2012.

That's just a little slower than the 5.9% jump in the fourth quarter of 2012 over the same period a year earlier, according to the John Burns inex.

On the sales front, March's pending home sales were up 1.5% from February for only a modest gain, the National Association of Realtors reported Monday. Those figures reflect signed contracts, not closings.

And existing home sales in March eased 0.6% from February's level.

Both were held down by the lack of houses for sale, NAR said. The supply of existing homes for sale in March was about 17% lower than a year ago.

Tight supplies of homes for sale will likely continue to lift prices in some markets.

Nationwide, there was a 4.7-month supply of homes for sale in March, meaning they would all sell in that time frame if sales continued at March's pace and no supply was added. Typically, a six-month supply is considered balanced.

California markets have even tighter supplies of homes for sale, dropping below 3 months in March, the California Association of Realtors says.

Spring Market Play: Sector Rotation

A strong but somewhat uneven stock market rally in the first quarter has strategists looking for underperforming areas to overweight, and overheated areas where exposure needs to be pared back.

In practical terms, that could mean more money flowing to areas such as energy and certain foreign markets, while the defensive sectors that did so well in the first quarter could begin to see outflows.

"Sector rotation is one of the most used phrases to discuss moves in the market, but nine times out of 10 the person citing it has no way to show it," Bespoke Investment Group noted in a report.

However, as the second quarter enters its second month, some of the trends are becoming more visible.

Last week, technology hardware and materials led gainers after underperforming earlier in the year, while defensive sectors such as household and personal products as well as drugs and biotechnology ceded their positions, Bespoke found.

Globally, there have been shifts as well.

The U.S. indexes have been among the leading performers this year, but there are signs that foreign markets could be stepping up.

The German DAX broke its 50-day moving average with a 4.6 percent gain last week. Markets in Italy, France and the UK also registered gains in the 4 percent range.

Citigroup has made some sector shifts in preparation of a changing market.

The firm shifted energy to overweight-a move that hasn't paid off so far as the sector is off 1.4 percent and has been the worst performer this quarter in the Standard & Poor's 500.

But it has held the position while downgrading food, beverage and tobacco to underweight. The firm also has cut allocations to transportation and telecom services.

Tobias Levkovich, Citi's chief market strategist, warned that conditions are changing and stocks could be unpredictable going forward.

"We continue to believe that (the second half) may prove more challenging but a summer slump driven by the old 'Sell in May' adage is not necessarily in the cards," he said in a note to clients.

Citi is holding to its 1,615 S&P 500 price target, but Lefkovich said the index could exceed that level before dropping below and then rebounding again.

"Valuation remains attractive, while implied long-term earnings growth expectations have stayed subdued," he said. "Buyback activity has stepped up and money has begun to flow into equity funds. Even intra-stock correlation has rebounded while sentiment is no longer complacent. Hence, the market should grind higher."

Gauging the extent of sell in May, and watching laggards, likely will become key to dealing with the grind.

"What we have seen is the market, which was going through a bit of self-doubt if you will, has started to feel a little more confident about its prospects," said Sam Stovall, chief equity strategist at S&P Capital IQ.

Stovall said investors looking for an easy sell-in-May trade could be surprised.

"Whether it's simply an end-of-month knee-jerk reaction or the beginning of a don't-sell-in-May kind of move, we're seeing the cyclical sectors take leadership," he added. "We have to wait and see whether it's simply a knee-jerk reaction."