The Market Today
Better-than-Expected Earnings Push Stocks to New Record Highs
by Craig Dismuke, Dudley Carter
Mortgage Applications Pull Back During Easter Week: Mortgage applications for the week ending April 19 fell 7.3% on a 4.1% decline in purchase apps and an 11.0% drop in refi apps. The run of six consecutive weekly increases for purchase applications ended but they remain 23% above their December 29 level. Mortgage rates ticked higher during the reference week, the 30-year mortgage rate rose from 4.44% to 4.46%, but the weakness was more likely related to the Easter holiday.
Earnings Season Continues with More Tech Reports Today: Today’s earnings calendar will be headlined by Microsoft, with after-market reports from Facebook, Tesla, and PayPal, to name a few.
Battle to Pass USMCA: Vice President Mike Pence will speak in Dearborn, MI today in an effort to rally support for the USMCA, last year’s revision to NAFTA. There are concerns that the House may not pass the new trade agreement in its current form which could hurt the recent market euphoria.
Overnight – U.S. Records Receive Little Acknowledgment from Global Equities: The global response to U.S. equity indices’ return to record territory has been mixed overnight and Treasurys have rallied in price for a second consecutive session. Major indices in Japan closed lower while Chinese stocks were generally stronger on the day and the Stoxx Europe 600 fluctuated around the flat-line. Energy companies were near the bottom of most major benchmarks as crude prices pulled back from six-month highs. U.S. crude inventories likely rose by close to 7 million barrels last week according to an industry report, which if confirmed by the EIA would represent the third such sizeable build in the last four weeks. News that the U.S. would not renew waivers for purchases of Iranian oil boosted prices earlier in the week. Positive earnings and transaction-related news solidified tech stocks as the biggest boost for European equities and pushed Germany’s DAX higher despite most other sectors weakening. After inching up in March, German business confidence stepped back unexpectedly in April as expectations slipped to their third-weakest level in six years. European yields slid after the report with the 10-year yields down 3.5 bps in Germany and 3.9 bps in the U.K. Treasury yields have tracked those moves lower with the 2-year yield 2.2 bps lower and the 10-year yield down 3.4 bps. As the global economic data has continued to signal U.S. outperformance, the Dollar has quietly crept up to its highest level since the summer of 2017. U.S. equity futures were little changed amid another flurry of mostly upbeat corporate earnings.
Yesterday’s Trading – Better-than-Expected Earnings Push S&P and NASDAQ to Record Highs: Twitter’s earnings beat started the morning on a positive note with stocks moving higher through 11:00 a.m. CT. They then held near their highwater marks throughout afternoon trading. Positive earnings reports from other companies throughout the day helped keep spirits high along with upbeat assessments of future expectations. By the end of the day, the S&P had risen 0.9% to a new record-high close, surpassing its previous record-high from September 20, 2018. The broad index closed at 2,934, up 24.8% from its December 24 close of 2,351. Every sector except the defensive consumer staples sector gained on the day; but, healthcare (+1.60%), consumer discretionary (+1.22%), information technology (+1.13%), and real estate (+1.11%) stocks led the way higher. The more tech-heavy NASDAQ rose 1.3% on the day, also setting a new record-high dating back to August 29, 2018. The Dow rose 0.6% to close at 26,656, just 0.6% below its October 3, 2018 high. One-fourth o f the way through earnings season, 79% of S&P companies have beat expectations for earnings with informational technology leading the way. The U.S. Dollar rose another 0.4% to its highest level in six weeks. Oil continued to grind higher throughout the day with Brent crude up 0.6% to $74.43 per barrel.
Lower Rates and Lower Priced Homes Drive up New Home Sales: New home sales beat expectations in March rising 4.5% after rising a revised-higher 5.9% in February. New home sales are now up to 692k (SAAR), the second-highest level of the cycle. Sales of lower priced homes helped drive activity higher. The median price of new homes sold fell $12,500 to $302,700 (down 9.7% versus last March’s median sales price). While the number of higher priced homes sold did not decrease, there were notable increases in the numbers of homes sold below $150k and between $150k and $299k. Based on a faster pace of sales and 1k fewer homes for sale, months’ supply fell from 6.3 months to 6.0 months, the lowest since last June. For the quarter, new home sales were up 14.7% which will likely make residential investment accretive to 1Q GDP growth for just the second time in two years. Moreover, residential investment could add as much as 4/10ths to the final GDP tally.
Home Price Gains Continue to Moderate Helping Affordability: The FHFA’s February Home Price Index showed slower price gains than expected, up just 0.3% MoM bringing the year-over-year rate to 4.9%, down from its recent peak of 7.6% in February 2018. Regionally, the Mid-Atlantic and Mountain West saw monthly price declines while every other regional saw gains. Over the past year, the pace of gains in the Mid-Atlantic, West Coast, and South Central states have been the most modest; up 3.8%, 3.7% , and 3.5% YoY, respectively. As sales activity has suffered from higher mortgage rates and rising home prices, price gains have begun to taper off. However, the slower trend for price gains along with the recent pullback in mortgage rates is creating a better environment for sales over the short- to medium-term.