The major indices posted gains to start the week with recent new home sales figures for May, along with a robust merger and acquisition environment providing a lift to bullish sentiment.
The Commerce Department said new-home sales rose in May at their fastest pace since December, as sales climbed notably in the South and West.
Sales of single-family homes increased 4.6% last month at a seasonally adjusted rate of 1.234 million, which was much stronger than the 4.0% decline forecasted from April's 1.15 million annual rate.
However, regional data showed mixed results, with softer pricing spurring demand. While new-home sales jumped 6.0% in the South and 5.3% in the West, sales fell 7.9% in the Northeast, hitting the lowest regional level since July 2004.
The average price of a home dropped to $249,300 in May, which was down from an upwardly revised $302,000 in April. The median price dropped to $235,000 from an upwardly revised $245,900. Compared with a year earlier, the average price in May was 2.4% higher, while the median price of a new home rose 2.9% year-over-year.
The Commerce Department said an estimated 114,000 homes were actually sold last month, up from 105,000 in April, based on figures not seasonally adjusted.
There were an estimated 556,000 homes for sale at the end of May, own from April's record 560,000. May's inventory of new homes slipped to a 5.5 month's supply at the current rate of sales, compared to April's 5.8 month's supply.
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While the direction of housing market indicators has not been uniform, so far this year's data generally have shown a slowdown. Last week the National Association of Home Builders reported its index for new home sales fell to its lowest level in more than 11 years.
Today's data had little impact on July Fed Fund futures (ff06n) 94.72, which still predict a 100% chance of a 25-basis point rate hike when the FOMC meets later this week.
It was another "Merger Monday" with Phelps Dodge (NYSE:PD) $76.23 -8.10 saying it had reached an agreement to acquire Canadian mining companies Inco (NYSE:N) $64.21 +10.21% and Falconbridge (NYSE:FAL) $51.80 +5.07% in a deal valued at roughly $40 billion. If consummated, the deal would create the largest mining company based in North America.
Industry analysts see annual output from the combined company totaling 3.4 billion pounds of copper, making it the world's largest publicly-traded copper producer, and 738 million pounds of nickel, which would put it at the top list of global nickel producers.
News of the deal raised eyebrows in Canada, as well as anger from union leaders and lawmakers that will undoubtedly mount an effort to keep Inco and Falconbridge under Canadian control. Phelps Dodge said that while copper operations would shift to the company's headquarters in Pheonix, AZ, nickel operations would continue to be based in Toronto, home to both Inco and Falconbridge.
Citigroup and HSBC advised Phelps Dodge, Inco was advised by Morgan Stanley, RBC Capital and Goldman Sachs, while Falconbridge was advised by CIBC World Markets.
Additional M&A activity was found with Johnson & Johnson (NYSE:JNJ) $60.21 -1.81% saying it would buy Pfizer Inc's (NYSE:PFE) $23.01 +1.63% consumer health-care business (Listerine mouthwash, Sudafed decongestant and Nicorette smoking cessation products) for $16.6 billion in cash.
Sources close to the deal told Reuters that J&J's offer topped bids from British groups GlaxoSmithKline (NYSE:GSK) $53.98 -0.27% and Reckitt Benckiser PLC.
Shares of Sirius Satellite Radio (NASDAQ:SIRI) $4.70 +5.14% also benefited from some merger talk and were atop today's list of most actively traded in what would be characterized as a light volume session at the NASDAQ. Sirius saw just over 930 million shares change hands after the company's CEO, Mel Karmazin said he would be "interested" in buying rival XM Satellite (NASDAQ:XMSR) $14.37 +6.76%, but thought regulatory issues "would be a question mark."
Mr. Karmazin didn't give my (Jeff Bailey's) thoughts to a possible pairing of a DirecTV/SIRI or XMSR, or EchoStar/SIRI or XMSR marriage much time, saying he thought it would make more sense for DirecTV and EchoStar to continue to try and merge with each other.
In 2002, regulators nipped a proposed merger between DirecTV (NYSE:DTV) $16.24 +0.06% and EchoStar (NASDAQ:DISH) $30.25 +0.29% amid competitive concerns.
Investment banks, you might want to approach Garmin (NASDA:GRMN) $98.88 +0.54% with the idea of a possible acquisition of SIRI, or XMSR. SIRIUSLY!
U.S. Market Watch - 06/26/06 Close
One area of my U.S. Market Watch that should not go unnoticed is the impressive gains found among the Securities Broker Dealer Index (XBD.X) 209.42 +0.75%. Yes, M&A news of late may have traders focusing on energy and miners, but the large investment banks/brokers that are putting some of these "blockbuster" deals together should be seeing some heft investment banking fees.
With NASDAQ and NYSE volumes beginning to show summer-like volumes where the retail trader spends more time at the beach than at their trading terminals, corporations seem more than willing to "make a deal" in recent weeks.
Securities Broker Dealer Index (XBD.X) - Daily Intervals
M&A activity can mean "big bucks" for the investment bankers. While light volumes can hamper gains from some of the online brokers, gains for the XBD.X oftentimes fuels a broader advance for the financial industry as a whole.
In today's Market Monitor at OptionInvestor.com I updated a Sector Bullish % Bell Curve (12:56:51 PM EDT) comparison from 06/16/06 to Friday's close. I associate the WALL Street sector bullish % with the brokers. As of this writing and tonight's close, the BPWALL from Dorsey/Wright & Associates remains in "bear confirmed" status at 34.15% (up 2.44% today) and would currently need a reading of 48% to achieve the strongest of market conditions reading of "bull confirmed."
S&P 500 (SPX.X) - Daily Intervals
All I'm doing here with the SPX chart is using similar retracement as used with the XBD.X. I would not say that the XBD.X is strong enough to pull the SPX out of its "bearish funk," but I don't like to be surprised either! I've lost track over the years of how many times the financials lead the majors out of, or into a decline. With all the talk of "merger mania," but not a lot of discussion of how much revenue/earnings can be generated by the big investment banking firms, I want to have a close eye on the XBD.X.
Since I'm discussing the BIG investment banks, let's take a look at the small caps as June's "reconstitution" runs its course for the Russell indexes!
Russell 2000 Index (RUT.X) - Daily Intervals
Just as financials represent the largest weighting in the SPX, so is true with the RUT.X. Very similar technicals relative to 21-day, 50-day and 200-day SMA's, but the RUT.X does appear to be "lagging" within a similar May high to recent June relative low. This gives hint that "size does matter" and perhaps some credence that the BIG brokers are a place to be looking long.