New Home Sales Were a Positive?
Tuesday, July 27, 2010. 9:15 a.m.
The stock market took yesterday’s report that new home sales came in at 330,000 units in June as a positive.
However, May sales, which were originally reported a month ago to have plunged a huge 32.7% to the worst level ever recorded since the record-keeping began in 1963, were revised downward to an even worse 36.7% decline, at only 267,000.
So the June sales were a 23.6% increase over that record low, which was the headline news.
But sales were only 6.1% above the consensus forecast of a bounce to 311,000 units after the big plunge in May, and at 330,000 June experienced the 2nd lowest monthly sales ever recorded. The two month average of 298,500 homes sold was the lowest two-month level ever recorded.
Sales of new homes are at 47 year lows, down 80% from the number being sold in 2004, and a wave of foreclosed homes will be hitting the market over coming months, giving new home sales even more competition. Foreclosures on mortgages backed by Fannie Mae and Freddie Mac increased 21% in June from May.
A turnaround in housing? I don’t think so.
Earnings Continue to Impress.
Second quarter earnings continue to impress and Wall Street is doing a better job of getting mileage out of them than they did from the impressive 4th quarter and 1st quarter earnings reporting period, when market corrections began as the better than expected reports were released.
Perhaps this would be a good time to quote from the Stock Traders Almanac; “Beware ‘Summer Rally’ Hype. Historically the Weakest Rally of All Seasons.”
However, FedEx (FDX) helped propel the market rally yesterday, reporting 2nd quarter earnings that beat estimates, but more importantly upgraded its outlook, saying it expects its express deliveries to grow more than 20% this quarter (depending on the economy continuing to recover). This morning, chemical maker Dupont (DD) reported earnings of $1.17 a share, which handily beat estimates of 93 cents, and the company raised its estimates for the full year. [Of course the full year would be higher than previous estimates if the 2nd quarter was 24 cents above estimates]. Lockheed Martin (LMT) reported its Q2 earnings were up 12% over the 2nd quarter last year, and raised its previous estimates for the full year. Cummins Inc. (CMI) reported earnings of $1.25 a share versus estimates of 91 cents.
Headlines Elsewhere:
Financial Times: “Home Help. Up close a jumping frog is spectacular indeed, but you won’t get very far riding the amphibian. June’s rebound in new home sales should be viewed in the same way. – data released from the Commerce Department yesterday showed a 24% leap in new home sales from May to June. Step back though and the US housing market is still croaking.”
“In absolute terms, June was the second worst month for new home sales since the data series began in 1963. The bounce is only because the annual rate of sales in May, the worst month on record, was revised downward to 267,000 units – just 20% of the sales rate at the peak in 2004. Yet demand remains extremely depressed. Even though US households can borrow for 30 years at a fixed mortgage rate of 4.59%, an all-time record low, mortgage applications for home purchases continue to trend downwards. . . . If the market is struggling now it’s hard to picture it thriving when interest rates return to normal. Meanwhile, there are too many homes on the market to suggest price stabilization.”
Subscribers: There is an important hotline update on your website from last evening!
Yesterday in the U.S. Market.
The market was up right out of the gate, moved sideways for the rest of the day, with a final hour further burst to close on its high, with the Dow up 100 points, exactly at the previous resistance at its 20-week m.a. that halted its last two short-term rallies since the April peak.
Volume was again light, only 1 billion shares traded on the NYSE, indicating it’s still only the same daily traders creating the rally, with sideline money not being enticed in.
Yesterday’s Intraday Chart.
The Dow closed up 100 points, or 1.0%. The S&P 500 closed up 1.2%. The NYSE Composite closed up 1.2%. The Nasdaq closed up 1.2%. The Russell 2000 closed up 2.2% The DJ Transportation Avg. up 2.6%.
The dollar etf UUP closed down 0.5%. The treasury bond etf TLT closed down 0.2%. The gold etf GLD closed down 0.5%.
Yesterday in European Markets.
European markets also closed up. The London FTSE closed up 0.7%. The German DAX closed up 0.5%, and the France CAC closed up 0.8%.
Asian Markets Were Mixed With Very Small Moves Last Night.
Among individual markets:
Australia closed up 0.6%. China closed down 0.5%. Hong Kong closed down 0.1%. India closed up 0.1%. Indonesia closed up 1.1%. Japan closed up 0.1%. Malaysia closed down 0.1% New Zealand closed down 0.4%. Singapore closed up 0.4%. South Korea closed down 0.1%. Taiwan closed down 0.3%.
Markets This Morning.
European markets are up this morning. At the moment London is up 0.8%. Germany is up 0.7%, and France is up 1.4%.
Oil is up $.42 a barrel at 79.40.
Gold is down $6 an ounce at $1,177.
Markets In the U.S.
This week will be another fairly heavy week for potential market-moving economic reports including more related to the important housing industry; New Home Sales, and the Home Price Index, and Durable Goods Orders, Consumer Confidence, and the first estimate of 2nd quarter GDP. To see the full schedule of the week’s reports click here, and look at the left side of the page it takes you to.
Yesterday it was new home sales in June, which rose more than forecasts, but were the 2nd lowest monthly level ever recorded.
This morning the Housing Price Index showed home prices rose an average of 1.3% in May. It was the second increase after six straight months of decline. The chairman of the index committee at Standard & Poor’s said the positive May report is a bit misleading. But the market liked it, with pre-open indicators becoming more positive after the report.
Still to come this morning is Consumer Confidence, which will be released at 10 a.m.
The 2nd quarter earnings reporting season also continues, and seems to be the market driver.
Pre-Open Indicators.
Our pre-open indicators are pointing to the Dow being up 50 points or so in the early going.
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