Wells Fargo is relatively upbeat about mortgages and margins in today’s post-earnings conference call
It was never about last quarter’s earnings. So while it was swell that Wells Fargo (WFC) beat Wall Street earnings estimates for the second quarter by 5 cents (at 98 cents a share) in results reported after the close yesterday, July 11, the real good news came in today’s relatively upbeat conference call in remarks about next quarter and the remainder of 2013.
The bank, a bellwether for the mortgage and housing sectors, said that looking forward it remained optimistic on the economy. Higher interest rates would indeed cut into mortgage originations and mortgage lending volumes would be down in the third quarter—directionally that is what investors expected to hear—but the deterioration described by the company didn’t sound too scary. Mortgage originations in the third quarter would decline, the bank guessed, to the vicinity of $100 billion versus $112 billion in the second quarter. (The $112 billion for the second quarter was up from $109 billion in the first quarter of 2013.)
Other metrics that had worried Wall Street going into the earnings report and the conference call got the same combo treatment of downward trend but not at a scary pace. Read more
Bounce or rally? The market moves up on housing data, oversold technicals, and projections of better than expected economic growth
The headlines this morning attributed today’s stock market climb to good news from the U.S. housing market and an uptick in optimism that politicians will solve the U.S. fiscal cliff.
I wouldn’t forget about the market’s oversold condition and the effect of the short holiday week.
Existing home sales climbed to an annual rate of 4.79 million in October, according to the National Association of Realtors. That’s up from the 4.69 million annual rate in September. Economists surveyed by Briefing.com had projected a 4.7 million annual rate for October.
The percentage of sales accounted for by distressed properties—houses in foreclosure, for example—fell to 24% of all sales in October. That’s a drop from 28% in October 2011. The decline in sales of distressed properties helped push median home prices to an 11.1% increase from October 2011. The rising price of existing homes is good for future sales of new homes since it makes new homes comparatively cheaper when measured against existing homes.
So it’s not surprising that shares of homebuilders and home improvement suppliers led today’s rally. The Standard & Poor’s 500 stock index closed up 1.99% as of 12:30 p.m. Shares of Lennar (LEN) were up 1.88%. PulteGroup (PHM) climbed 1.4%. Shares of Lowe’s (LOW) rose 6.19% and those of Home Depot were up 1.95%.
The news on the fiscal cliff is a lot less robust today consisting of some positive comments from President Barack Obama while he’s on a tour of Thailand, Myanmar, and Cambodia.
I’d throw news from Goldman Sachs and Barclays into the mix since it reinforces the message from the housing numbers and extends it to the economy as a whole. Read more
One more dip should do it.
I’m putting Weyerhaeuser (WY) on my watch list http://jubakpicks.com/watch-list/ today, May 22. I added the stock to my Jubak Picks 50 long-term portfolio http://jubakpicks.com/jubak-picks-50/ back on January 13 because in the long-term I think it’s a good way to profit from the eventual recovery of the U.S. housing sector. Since then, the shares have done just about nothing—they’re down 2.7% as of 3 p.m. on May 22. But the stock pays a 3.1% dividend so from a long-term perspective, I’m willing to wait for the turn.
But from the shorter-term 12-18 month perspective of my Jubak’s Picks portfolio I’d sure like to buy closer to the turn in the sector. Today’s numbers on existing home sales say that turn continues to approach—although it’s not quite here yet. If tomorrow’s numbers on new home sales confirm this trend, I’ll be looking to buy on the next dip toward the stock’s 200-day moving average of $18.43. That’s roughly 6% from the stock’s $19.54 price at 3 p.m. on May 22. Not a huge amount, but I’m looking not just to reduce my purchase price but in this 12 to 18 month portfolio to shorten the period between buying and profiting.
The data released this morning show a continued recovery in existing home sales to an annual rate of 4.62 million in April from 4.47 million in March. Economists surveyed by Briefing.com had expected sales to increase to a 4.65 million annual rate.
Although the data was positive, digging down a level raised a worry or two. Read more
Investors looking for a breakout in housing sales are disappointed with the data on home sales and housing starts released today and yesterday. That’s why shares of homebuilders such as Lennar (LEN) are down—by 2.5% in this instance—today. The recent huge rally in stocks in the sector has left them vulnerable to profit taking on anything less than stellar news.
It’s not, however, that the news in the last two days is bad. It does indeed argue for a recovery in the sector. But that recovery isn’t going to be a moon shot but rather a slow and halting recovery. For the patient, a sell off here on disappointment that the recovery isn’t going to be faster would be a chance to get into a sector that indeed does seem to be on the mend. Read more
I’m seeing headlines calling the 11% drop in housing starts announced this morning (May 17) in April from March “surprising,” but I don’t see why. Flooding and tornadoes in the South shut down construction sites in a big swath of states this spring. (April 2011 was the 10th wettest April since the start of records in 1895. The 875 tornadoes reported in the month are a record.) Housing starts in the south fell 23% from March levels.
But whether you’re surprised or not, there’s no doubt that the housing industry continues to struggle two years after the current economic recovery started. Housing starts in April came in at a 523,000 annual rate. That’s 11% below the annualized rate for March and considerably short of the 569,000 rate forecast by economists, according to Bloomberg.
There’s no quick turnaround in the cards either. Read more