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Tuesday, August 23, 2016
Markets rise on strong housing data
Dow climbed 66, advancers over decliners 4-1 & NAZ added 26. The MLP index was about even in the 312s & the REIT index gained 1+ to the 363s. Junk bond funds traded highers & Treasuries did not do much. Oil dropped again (see below) & gold is up 3.
Purchases of new US homes unexpectedly jumped in Jul to the
highest level in almost 9 years, led by soaring demand in the
nation’s south & adding to signs of persistent housing-market
strength. Sales increased 12.4% to a 654K annualized
pace, the fastest since Oct 2007, according to the Commerce Dept. That exceeded the most optimistic forecast. Employment gains &
historically low borrowing costs are providing firm support for housing
demand, helping reduce inventory, which will probably keep new
construction elevated. The report showed an increase in the share of
homes sold for less than $300K, indicating builders are turning their
sights to entry-level buyers.
The forecast called for the pace of sales to decelerate to 580K. The Jun reading was lowed to a 582K pace from a previously
estimated 592K (still less than ½ the record pace of 1.39M sales in 2005, before the housing bubble burst). In
a sign that construction will contribute to economic growth in coming
months, the number of homes sold but not yet started climbed to the
highest level since May 2007. The increase included an 18.1% jump in the South to a 398K. The supply of homes fell to 4.3 months from
4.9 months in Jun & there were 233K new houses on the market at the
end of Jul, the least since Nov. The median sales price of a new house declined 0.5% from July 2015 to $294K.
Oil dropped for a 2nd day as producers boost supply ahead of Sep. Futures fell almost 2% after declining yesterday for
the first time in 8 days. Iraq asked intl energy
companies to increase oil & gas production to boost national revenue.
If OPEC & some producers from outside the group agree to cap output at
informal talks next month, the resulting price boost may help other
suppliers revive production.
Oil
entered a bull market last Thurs, having climbed more than 20% since dipping below $40 a barrel earlier in the month. Crude was
driven higher partly by speculation that discussions among members of OPEC may lead to action to stabilize the market. Prices
subsequently retreated as Iraq sought to increase exports & Nigerian
militants called an end to hostilities, potentially boosting supply. West Texas Intermediate for
Oct delivery dropped 72¢ (1.5%) to $46.69 a barrel. US crude
inventories probably dropped by 1M barrels last week, according
to the an estimate & gasoline supplies may have shrank 1.5M barrels (for a 4th week of declines).
Crude & motor-fuel inventories are still at their highest seasonal
level in at least 2 decades.
Toll Brothers reported a rise in revenue for the 4th straight
qtr, beating estimates, as it sold more luxury homes at
higher prices, suggesting a steady growth in the US housing market. Orders, a key metric of future revenue for homebuilders, rose
18.2% to 1748 units in fiscal Q3, its highest growth in 2 years. It also raised the lower end of its average selling price
forecast for the year ending Oct 31 to $840K from $820K,
maintaining the higher end at $850K. However, the company revised its forecast of home deliveries for
the year to 5.9-6.2K homes from its previous range of 5.8-6.3K
homes. New US single-family home sales rose more than expected in
Jun, reaching their highest level in nearly 8½ years. EPS rose to 61¢ from 36¢ a year earlier. Revenue jumped 23.5% to $1.27B. Analysts had expected EPS of 61¢ on revenue of $1.25B. The stock went up 90¢. If you would like to learn more about TOL, click on this link: club.ino.com/trend/analysis/stock/TOL?a_aid=CD3289&a_bid=6ae5b6f7
Strong housing data is good & bad. The strength shows the economy is doing better, but it could also give Janet Yellen the courage to raise interest rates, something the stock market fears. This is late summer so price swing are not usually significant.
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