Consumer Confidence Snaps Back

Back in February, the consumer confidence number, you may remember, took a sudden plunge, after three straight months of improvement. March's figure, released on Tuesday, provided a strong bounceback: After dropping in February to 46.4, the lowest figure since last April, the consumer confidence number came in at 52 in March, above even the analysts' estimate of 50.

The hard numbers agree with that assessment. Retail growth came in at a 3.7 percent increase in February, and the International Council of Shopping Centers expects a March number in the area of 3.5 percent growth. Housing prices are also up a tick in the most recent figures.

So what happened to consumer confidence in February? It's possible it was just a statistical blip. The Conference Board calculates its consumer confidence number by surveying 5000 households chosen at random. While that's enough to provide a statistically significant sample, there's always a small chance that enough wayward households got into the February sample to skew the numbers a bit. Given that the February retail numbers - the ones most affected by consumer confidence - didn't show any weakness at all, that seems a likely occurrence.

The Good News in Junk

One segment of the financial arena that has been very strong recently is the so-called junk bond market. Junk bonds, or risky corporate bonds that paid high interest rates, helped fuel the boom of the 1980s, of course, and when their market fell apart, they were eventually re-branded as "high-yield bonds." But now they're hotter than ever: There were a record $38.3 billion worth of these bonds issued in the month of March. (The previous high was $36 billion in November 2006.) They're so hot people don't mind if they're referred to as "junk bonds" again.

A big part of this resurgence is the continued near-zero interest rate offered by the Fed. Even relatively risky bond issuances can get decent rates; these high-yield offerings are paying only about 6 percentage points higher than Treasury debt at this point. Those interest rates are inducing more and more companies to issue debt, which is easier to pay back when "high-yield" doesn't have to be all that high.

It's also a sign of confidence in the economic recovery. Companies take on debt to fuel expansion and growth, and they don't take it on unless they feel confident that they will be able to pay it back. If they feel confident about being able to pay back even high-risk debt, that's a very good sign for our economy.

Tracking the GDP Changes

The Commerce Department issued its final revisions of the fourth-quarter GDP numbers late last week: It seems that instead of 5.9 percent growth, as had been reported earlier, the actual number is 5.6 percent. It's also worth reminding everyone that none of this really matters. Our economy grew at a certain level in the fourth quarter of 2009, and changing the number that's assigned to it doesn't affect what happened at all.

The bigger question is: where does the GDP number go from here? The Obama administration and most analysts peg the growth rate at around 3 percent for the remainder of the year. Most of the time, that's a perfectly respectable figure. In the current environment, though, it will feel very sluggish, and won't be enough to greatly affect the unemployment figures.

The estimate for GDP growth for the first quarter of 2010 - we really should call it the first estimate - will arrive at the end of April. We'll keep you posted.

Unlucky Horseshoes

Would you think of investing with a company that makes rubber horseshoes? What if the head honcho told you that they were going to be used in the Olympics? There are indeed equestrian events in the Olympics, but how many horseshoes can those people buy? Nevertheless, enough people were convinced of the solidity of this idea that a man from Garfield was able to convince them to give him $1.7 million to help make his scheme come true.

But the man, Samuel Serritella, never made a single horseshoe, and never put a penny into the business except to rent an office. The New Jersey attorney general indicted Serritella on Thursday, charging him with securities fraud, theft, money laundering, and corporate misconduct.

These stories are always sad, but what makes this one worse is that Serritella preyed primarily on firefighters and police officers, persuading 300 people to invest with him. It's doubtful that they will ever receive full restitution - Serritella has blown at least $350,000 already. Please, everyone: Let's be careful out there.

More Mixed Signals in Housing

February has proved to be another month with extremely mixed signals from the housing market. The big news, the tidbit that made all of the headlines, is that new-home sales reached a record low in February, with contracts being signed at an annual pace of 308,000 sales. That's down from a rate of 315,000 in January, and down 13 percent from February 2009.

There are a couple of caveats to that. These figures are seasonally adjusted, but as we've mentioned before, they're not weather adjusted. February was one big snowstorm here in the Northeast, and not surprisingly, new-home sales dropped 20 percent in this region as opposed to February 2009. In the West, which had no serious weather disruptions, February's new-home sales were up 20 percent. (It's also worth mentioning that the "record low" actually means the low dating back to 1963, when such record-keeping began.)

But there was also a curious figure buried in the housing report: Despite the fact that sales have dropped, prices are on the rise. The median price of a new home in February was $220,500, up 6 percent from January's figure. Prices rose more than sales fell, in other words. So new homes are costing more even as they're selling less.

Adobe's Good News

We saw a perfect example yesterday of how Wall Street isn't so much rewarding performance as it is reacting to expectations. Adobe Systems, the San Jose-based creator of software products such as Acrobat and Creative Suite, released numbers that looked pretty weak: Adobe's profits fell from $156.4 million in the first quarter of 2009 to $127.2 million in the same quarter this year. That's a drop of nearly 20 percent. Adobe had released its latest software package in the teeth of the recession in 2008, and ended up laying off 9 percent of its workforce last year.

But Adobe shares rose 4 percent in after-hours trading once the announcement had been made. Why? Because the company had targeted first-quarter revenues in the $800 million to $850 million range, but they actually came in at $858 million. Adobe also forecast second-quarter revenues of somewhere between $875 million and $925 million, while the analysts had forecast $860 million.

This is all a reminder that the market is forward-looking. All of Adobe's past troubles had been figured into the stock price before today, as had the various analysts' expectations. In the end, what really moves a stock's price is change.

The Small-Cap Rally

In talking about the direction of stocks we sometimes lapse into the habit of describing the market as a whole, when of course there are many different sectors and classes of stocks that behave in different ways. For example, we've noted that we recently passed the one-year anniversary of the market's bottom. The S&P 500 and Dow Jones have both done really well in the 12 months since then, gaining roughly 72 percent and 65 percent, respectively.

But the bigger winner over that same time frame has been small caps. The Russell 2000 index, which collects 2000 stocks with an average market capitalization of around $530 million, also bottomed out on March 9, 2009, at 343; it closed yesterday at 682. That's an increase of a whopping 99 percent - just about doubling in a little more than a year. The S&P 600 SmallCap Index, the S&P 500's little brother, tells a similar story - it's more than doubled, up 101 percent, since March 9 of last year.

Note that the small-caps haven't been wildly outperforming the large caps. There's been more than enough growth to go around. But it's clear that they have been the stronger asset class throughout this rally.