Wall Street Wavers
Major indices across the globe wavered on either side of unchanged today but the general mood and result was down. U.S. indices the Dow Jones Industrial lost 31 points to close at 9317, the NASDAQ Composite lost one point to close at 1764 and the S&P 500 added 0.65 to close at 993.71. Expectations for this week were mixed but after Friday's apparent one-day bearish reversal many investors were looking for some follow through by the bears. Traditionally, lack of volume, which was an issue today, favors the bears but even an overflow of sellers couldn't push the major indices very far.
The selling was heaviest in the technology related sectors but gold stocks joined the decline. The bond market also lost ground pushing the yield on the 10-year note up to 4.527%. Declining stocks out paced advancing stocks 16 to 11 on the NYSE and 17 to 12 on the NASDAQ. New highs rang in at 199 with new lows at 24 between the two exchanges. Down volume was about 50% greater than up volume across the markets with total volume squeaking in at a very low 1.16 billion on the NYSE and 1.1 billion on the NASDAQ (rounded up).
Chart of the Dow Industrials:
Chart of the NASDAQ:
Housing Market Peaks
Economists and analysts who had been expecting existing home sales to come in at an adjusted rate of 5.94 million were surprised to see sales jump 5% to a new record high at 6.12 million in July. The financial media was quick to report that this morning's numbers were based on closing transactions. That most likely means this July's existing home sales record is based on consumer decisions made in May and June when mortgage rates were at their lowest. One industry expert went so far as to say that we may have just witnessed the peak in the U.S. housing market. They may not be far off the mark since the average 30- year fixed rate mortgage was a record low of 5.23 percent in June. The average 30-year mortgage jumped to 5.63% in July.
The incredible sales pace pushed up home prices by 12.1 percent in the past 12 months. The median home sold for $182,100 in July and the year-over-year price increase was the largest since November 1980. Bloomberg reported that one executive with Century 21 Real Estate believes that while we may have hit a peak the U.S. probably won't see a significant slow down. An improving economy with interest and mortgage rates still near historic lows will keep home sales strong. However, most analysts believe that home price appreciation will likely slow to a more reasonable 4-to-5 percent. The strong home sales number is actually good news for the economy as home sales spur additional purchases for consumer durables.
Despite the positive implications of today's numbers is wasn't enough to spur the markets higher as some see the report as a lagging indicator. Tomorrow's New Home Sales report should carry more weight with Wall Street.
Wal-Mart & Intel Spotlight Again
Making the headlines again was Arkansas-based Wal-Mart (NYSE:WMT). The largest retailer on the planet said back-to- school sales have come in so strong that they are raising their August forecast from 3-to-5 percent to 4-to-6 percent. After some mid-day profit taking shares of WMT did bounce to close back over the $59 mark. Following its lead was the S&P retail index (RLX), which bounced into the closing bell for a fractional gain. Analysts believe that this is good news for the retailing sector's upcoming fourth quarter and the country's GDP as consumers represent 2/3rds of the economy.
Another Dow component grabbing the spotlight was semiconductor giant Intel Corp (NASDAQ:INTC). Almost half a dozen analysts upgraded their price targets on the stock. Some of the larger names making positive comments were Smith Barney, who raised their price target to $30; Bear Stearns, who raised their price target to $31; and Prudential, who raised their price target to $34. Unfortunately all the positive comments couldn't lift shares and Intel continued its profit taking from Friday's close.
The only analyst comments that traders were paying attention to were downgrades for two Dow Jones Industrial components. Prudential dropped its rating on the world's largest aluminum producer Alcoa (NYSE:AA) from a "buy" to a "hold". The analyst claims that the stock is already "fully valued" and sports nearly twice the P/E to its closest competitor Alcan. Shares lost 1.2 percent on the session and rebounded strongly from its lows of the day. Meanwhile, fellow component Caterpillar (NYSE:CAT) lost more than 2.8 percent after an analyst at Legg Mason sliced his rating on the stock from a "buy" to a "hold". The move was mainly based on valuation concerns, which isn't surprising given CAT's 75% rise in share price from its February 2003 lows.
Tuesday's trading is currently a toss up. Market direction will be heavily influenced by the economic reports due out tomorrow. Before the bell will be the Durable Goods Orders for July. During the session expect to hear the latest Consumer Confidence numbers for August and the New Home Sales for July. Plus we're always at risk for a terrorist event. Markets didn't move much on the bombing in India today but headlines like this do keep investors on edge and fingers close to the sell button. If you're a "glass is half full" kind of trader then the late afternoon bounce today might materialize into something stronger. Unfortunately, the general mood seems to be "sit back and watch", which given the low volume will probably lean toward additional profit taking. We are approaching September and everyone knows it is historically the worst month of the year. With this big black cloud on the horizon the easiest bets are probably not bullish ones.