Follow the ....?

Corporate profits, liquidity and commodity plays are providing some bullish sentiment for markets. They're being fettered by double dip concerns, a strong dollar and european sovereign debt worries.

But as cyclical and headline driven as these momentum boosters and killers are, perhaps the best indicators are more foundational? Housing and consumer sentiment tend to be strongly correlated with recessions and dips in the market. And what we see when we look at those segments is troubling but not desperate and speaks of a mundane, semi-flat lined recovery more than double dips or overly bullish gains.

For housing we're seeing a pullback from the recovery that was initiated and propped up by the governmental tax credits in 2009. It appears that the extended credit hasn't provided an additional boost, and much like the auto sector and its Cash for Clunkers program, future demand was brought to the present. What's left is likely to be a steady as she goes, slow growth environment, much like the now stable auto sector that can experience steady sales but significantly lower than its peak (9 million a year vs. 13 million a year).

Consumer confidence is largely driven by employment and the average joe, not fortune 500 corporate profitability and earnings. And the average joe is saying that he is still adjusting and deleveraging his debt, credit is scarce, there isn't a promise or reason to seek credit, and jobs are hard to come by. Which makes sense -- 2 of the 3 industries that spark jobs in recoveries are construction and finance, which (while stabliized) aren't expected to see strong growth in the near future, meaning neither will jobs. The 3rd is government which will be hiring census workers short-term but the federal and state deficits will mean continued hiring freezes if not further spending and job cuts! So consumer confidence is likely to remain muted.

Housing and consumer indices spiked in late 2009 as housing prospect and the end of firings came to fruition. But both have returned to earth and declined to a more reflective nature of the present day. It appears that the market has done and is doing the same - with occassional pulls back and near flat-line growth since late summer of 2009.

Housing and consumer indicators point to more of the same for rest of 2010. So we have to consider that the market may likely reflect the same.