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.

AMJ (Alerian MLP Index tracking fund)

Crude Oil Oct 16

Gold 100 oz. Dec 16

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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.

U.S. New-Home Sales Unexpectedly Surge to Almost Nine-Year High

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:

Toll Brothers (TOL)

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.

Dow Jones Industrials


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