By Carlos Guillen
Stocks markets here at home are retreating so far during today's trading session, taking away the small gains made during the first two days of this week. Data from around the world today has been mixed with Europe showing some bright spots, but with China showing more signs of difficulty maintaining its high economic growth rate. However, new home sales in the U.S. were rather encouraging.
Earlier today Government data showed that new-home sales reached a more than five-year high in June, and a separate report had the U.S. "flash" manufacturing purchasing managers' index (PMI) in July climbing to 53.2, a four-month high, but none of this was enough to prevent stocks from trading in losing territory.
While yesterday investors were encouraged that China will do what it takes to keep its economic growth running at above 7 percent, today they were a bit spooked by the fact that the HSBC Flash China PMI reading hit an 11-month low of 47.7 in July, still in contraction mode. Still, however, continuing chatter of some form of easing in China is mitigating further stock retreats today.
Financial results from Caterpillar did not help the cause either, and its shares are down 2.6 percent after the maker of construction and mining equipment reported a drop in second-quarter profit and lowered its full-year outlook. Caterpillar did say that business in China improved in the quarter and builder demand for its earth-moving machines was up, even though the overall construction equipment industry was down.
On a positive note, the Flash Composite PMI reading for the euro zone hit an 18-month high of 50.4 in July, and this helped European markets trade higher today and gave markets in the U.S. an initial jolt at the start of the trading session but that was it.
At the moment the Dow is continuing to slowly retreat and is down over fifty points. However, this may just be an opportunity to pick up stocks on weakness.
No Respect for Great Housing Results
By David Urani
June new home sales from the Census Bureau are out, and we got a 497k annual rate. That's an 8.3% increase month to month, and a 38% increase year over year; the consensus estimate called for 481k. This is the highest rate of sales since July 2008, and there were gains in all regions except for the Midwest.
Inventory rose slightly to 161k from 159k but effectively remains very low at a 3.9 month supply, which matches the cycle low from January. Consequentially, there remains the impetus for builders to continue to construct. Homebuilders have already been stretching themselves to get inventory out there amid supply shortages, and this latest data suggests there is much a need for new construction as ever.
There was also Meritage Homes (MTH) whose 2Q EPS beat by $0.27 while posting revenues up 55% year over year, blowing away the consensus, along with a 49% increase in new order value and a 23% increase in average sales price. The 2Q report from Lumber Liquidators (LL) was also encouraging this morning, with revenues up 22% including a 14.9% increase in comparable store sales.
All of these data and earnings were quite impressive this morning and you really couldn't ask for anything more, yet the Street continues to hold firm to a negative bias that came about ever since speculation began about the Fed slowing down (MTH is even trading flat on that huge earnings report). True, mortgage rates have risen but still we are not seeing evidence that has manifested in a meaningful decline in sales. And with respect to those mortgage rates, the MBA this morning reported that last week's average 30-year rate dropped 10 basis points from the previous week to 4.58%.
Nevertheless, housing related stocks are down today, with the Dow Jones US Home Construction index down 2.75%.
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