The financial press appears to be attributing today’s stock price gains to an improvement in pending home sales and some XXX earnings reports. No, it wasn’t Playboy that had better-than-expected earnings but two tech companies – CitriX and XilinX – who handily beat analyst earnings estimates, leading to healthy gains in the stocks, with perhaps some spill-over to other tech stocks. Not Apple, however, as Wednesday’s big winner retreated slightly today. Within the S&P 500, where nearly 4 stocks advanced for every decliner, the tech sector actually had a slightly below-average gain (0.6% vs 0.7% for the S&P 500) today. Tech-laden NASDAQ was up 0.7% today as well, while the “old economy” Dow Jones Industrials rose 114 points or 0.9%, closing within 60 points or 0.5% of its four-year high. With today’s gain, the S&P 500 closed just a couple basis points short of 1400 Thursday, within 1.5% of its April 2 high.
This morning’s report that pending home sales were up 4% in March, against Street estimates of a 1% advance, was a positive indication on future housing activity, but it hardly is the definitive improvement that markets and the Fed are awaiting. In yesterday’s post-meeting statement, the Fed said that housing remains depressed, but it did note “some signs of improvement,” a change from the Fed’s previous language. If one puts two and two together, it is possible to construct a slightly more positive denouement for the housing sector, but you still cannot come up with five. Hence our abiding caution regarding housing. For that matter, even Case and Shiller have decidedly different views of when home prices start to rise again.
In any case, the slight pop in pending home sales reported today hardly seems reason enough for a hundred-point rise in the Dow. What then explains Thursday’s market action, with stocks up two-thirds of a percentage point or better today and bonds rallying as well? Perhaps it was some residual enthusiasm generated by Apple’s stellar earnings report or better feelings about first-quarter earnings generally. Another possibility is growing confidence engendered by this week’s FOMC policy meeting that the Federal Reserve will pull out all the stops to keep Europe’s woes (and our own) from bringing the economic expansion, as anemic as it has been, from coming to a premature end. Can the Fed engineer an expansion along the lines of its forecasts, with 2014’s economic growth better than 2013’s, which is better than 2012’s growth, which in turn is better than 2011’s? The path of the economy remains to be seen, of course, and it seems to us that the U.S. stock market, which enjoyed an almost worry-free rise in the first quarter, is likely to have somewhat more serious and more frequent doubts in that regard, going forward.
Reports/dates/facts/links worth paying attention to over the next week:
- April 27: GDP advance estimate for Q1; University of Michigan consumer sentiment index for April.
- April 30: U.S. Personal Income and Consumer Spending data for the month of March.
Copyright © 2012 by Wright Investors’ Service, Inc. The views expressed in this blog reflect those of Wright Investors’ Service, Inc. and are subject to change. Statements and opinions therein are based on sources of information believed to be accurate and reliable, but Wright Investors’ Service, Inc. makes no representations or guarantees as to the accuracy or completeness thereof. These views should not be relied upon as investment advice.