Existing home sales bring (some) good news for the U.S. economy
I missed reporting on this piece of economic good news last week. And it’s an important piece of data since it feeds into my belief that the U.S. economy is strengthening and that the U.S. market is the place to be in the first half of 2011.
Existing home sales for December came in at an annualized 5.28 million. That was a big pick up from the 4.7 million annualized rate in November. Economists were expecting sales at an annualized rate of 4.8 million.
I wouldn’t bet the college money (well, not all of it, anyway) on this number—after all just a couple of days ago, on January 19, we got lower than expected numbers on housing starts for December. At the time some analysts blamed the disappointment on worse than normal December weather. Well, maybe.
Existing home sales have now climbed for three straight months and December sales were the strongest since August 2007—if you throw out the months when the federal government gave subsidies to homebuyers.
There’s good news and bad news in the numbers going forward. Read more
Is today’s good news on home prices only a false dawn?
So how stable is this stability in home prices?
That’s the question raised by the good news on home prices from today’s (February 23) release of the most recent S&P/Case-Shiller index of home prices. On a seasonally adjusted basis the index climbed 0.3% in December from November. For the fourth quarter the index climbed a seasonally adjusted 0.3% from the third quarter.
On a year to year basis the index was down 3.1% from December 2008. But that’s still good news: It’s the smallest year to year drop since May 2007.
Enjoy the good news while it lasts because most housing experts expect to see home prices fall again in 2010. And home builders, which have recently shown signs of recovery, are warning of tougher times ahead. D.R.Horton (DHI), which reported its first quarterly profit since 2007 in the fourth quarter of 2009, told investors in a February 2 conference call that it sees the September quarter ahead as its most challenging because the government tax credit for buying new homes that juiced sales in 2009 is now set to expire in April.
An even bigger problem than the expiration of tax credits is a wave of foreclosures expected in 2010. Read more
Was Lowe’s earnings report good or bad news for the economy?
So when does beating low expectations stop counting as good news?
It’s an important question for the stock market and for the economy as a whole. After easy to beat earnings comparisons in the first and second quarters, stocks face a bigger challenge in the third and fourth quarters of 2010 as they pass the absolute bottom for the economy. For more on how earnings comparisons get tougher as 2010 goes along see my post http://jubakpicks.com/2010/01/22/2010-well-the-first-half-anyway-looks-good-for-stocks-despite-the-current-correction/ )
Today, February 22, before the stock market opened Lowe’s (LOW) reported fourth quarter 2009 earnings of 14 cents a share and revenue of $10.17 billion. The results were above Wall Street expectations of 12 cents a share in earnings and $10 billion in revenue, but below the company’s own guidance for 15 cents a share and $10.3 billion in revenue.
Confusing picture, no?
Well, it doesn’t get any better if you dig a little deeper. Comparable store sales fell 1.6%, but Wall Street had expected that comparable sales would fall by 2%. This is the smallest drop in comparable sales since the second quarter of 2006.
Lowe’s CEO Robert Niblock told investors that the worst is behind the company.
Which isn’t, apparently, the same as saying that things are actually going to be good. Read more
Could it be? Housing stocks actually leading the market?
Bounce or trend? That’s the question.
The dollar took a break yesterday as it met some resistance after moving up so strongly in January.
Commodities hit support that then rallied.
At least that’s one way to look at it. From a purely technical point of view all we’ve seen this week is a bounce in commodity prices on a dip in the dollar. The United States Oil Fund (USO), for example, bounced off the bottom o its four-month trading range and its 200-day moving average.
But looking at the sectors and stocks that are moving together, you could also argue that the upwards move of the last two days is a reaction to news indicating that U.S. economic activity is picking up—fourth quarter U.S. GDP (announced last week) showed 5.7% growth—and that we might finally be seeing the bottom for home builders. Read more
Sell Deere (DE)
Sometimes the words are worse than the numbers. And that’s the case with Deere’s (DE) November 25 guidance for fiscal 2010, which began on November 1, 2009.
The company said fiscal 2010 earnings would come in at $2.12 a share on a 1% decline in sales. First quarter fiscal 2010 sales will be down about 10%, the company projects.
That’s no big deal and I’d be inclined to sit those numbers out and wait for the turn in Deere’s business that everyone expects in fiscal 2010.
Except for the words that the company used in describing fiscal 2010 sales. Those words lead me to sell Deere out of my 12-18 month Jubak’s Picks portfolio. I’m keeping the stock in my long-term Jubak Picks 50, however.
Here’s why I’m selling today. Read more
