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6/27/2012 2:15 PM
Markets up on Good Data
By Charles Payne, CEO & Principal Analyst
I really like the action thus far today, sparked in part by that amazing pending home sales (see long idea) but also on growing hopes that major chunks, if not all, of Obamacare will be tossed. That has positive economic ramifications that ease in slowly, but the big market-moving news comes at the conclusion of the EU Summit. Merkel has been tough as nails; if those profligate spending nations that spent the last few decades on the beach want German money they have to put skin in the game.
A Ray of Light
By Carlos Guillen
Equity investors are getting some encouragement from macroeconomic data here at home after obsessively focusing on all things Europe, which has been putting everyone on edge most recently. Durable goods orders and contracts to buy previously owned homes have shone a ray of light for many who saw nothing but a dark future for the U.S. economy, helping to ease concern that the world's largest economy is coming to a halt.
Helping markets get a lift today was that durable goods orders landed above expectations. According to the Commerce Department total durable goods new orders in May increased month-over-month by 1.1 percent, higher than the consensus estimate calling for a 0.5 percent gain. However, excluding transportation, new orders increased by 0.4 percent, lower than the consensus estimate calling for a 0.7 percent rise. But, sales of non-military capital equipment excluding planes climbed 1.6 percent after declining 1.4 percent in the prior month, giving increased hope that second quarter gross domestic growth may not be as bad as expected. These orders are considered a proxy for future business investment in items such as computers, engines, and communications gear, so an increase in these is very encouraging, particularly as most on the Street had been under the impression that businesses were cutting back. Let's just hope this was not just a fluke.
Also assisting markets today was more favorable data from the housing sector. Yesterday, the S&P-Case-Shiller index of property values showed some signs that the housing market was stabilizing, and today Pending Home Sales served to add more evidence that the sector will improve. As is stands, according to the National Association of Realtors, sales of used homes took a turn for the better, climbing 5.5 percent in May, matching a two-year high reached in March, after a 5.5 percent decline in April. The result was well above the Street's estimate calling for a 0.5 percent gain. It is becoming clear that record-low mortgage rates and cheaper properties are sparking buyer interest, and this is despite the fact that cooling employment and limited access to credit remain hurdles for the market. Looking forward, this trend may continue particularly as the Federal Reserve's decision last week to extend a program aimed at holding down borrowing costs may sustain the progress in residential real estate.
All in all, the data has invigorated many investors, and as a result equity markets are nicely in the green, with the Dow Jones Industrial Average up over 85 points. Nonetheless, with the European summit taking place for the next two days, the likelihood of volatility is still high.
Housing Sees Spring Heat
By David Urani
You've got to admire the strength in the housing market, which has largely been able to sidestep the world economic crisis according to a recent batch of positive data. Today we got the May Pending Home Sales Index which posted a 101.1 reading, up from 95.5. That's a 5.9% month to month gain, above the expected 1.2% gain. The strength was broadly across all regions, and it matched the best result since April 2010.
The housing market has been good enough lately, in the face of poor activity elsewhere, that we have to ask ourselves what is actually going on here? In a way we may not be seeing increased overall demand per se (although that is still possible), but instead demand that was already pent up. The credit market for mortgages has continued to be very tight and we know that's been restricting sales, and a shortage of supply in some regions is also limiting sales. Therefore, we may be seeing a market that has had higher potential over the past several months but is only gradually being able to live up to it.
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