The major U.S. equity indices closed the trading day with modest gains after housing data and earnings from companies including McDonald’s Corp. fueled speculation stimulus would continue. Investors have increasingly turned to stocks this month, as U.S. equity ETFs are receiving money at the fastest rate since September 2008. On the flip side, this will end badly for those who are not prepared to exit once the inevitable downturn arrives.
Last week, the first round of second quarter earnings brought a fair share of top line misses. This week started on a similar note after Dow component McDonald’s reported 2Q earnings of $1.38 per share, below the $1.40 Reuters consensus estimate, as revenues increased 2% year-over-year (y/y) to $7.1 billion, roughly inline with what the Street had anticipated. Outside of earnings, Yahoo Inc. announced that it has reached an agreement to repurchase 40 million shares of its common stock owned by Third Point LLC at a purchase price of $29.11 per share.
The only major domestic economic report today was existing-home sales, which surprisingly declined, decreasing 1.2% month-over-month (m/m) in June to an annual rate of 5.08 million units, below the 5.26 million unit Bloomberg estimate, but are 15.2% higher than last year. The median existing-home price rose 13.5% from a year ago to $214,200, marking the 16th consecutive month of y/y price increases. The supply of homes available for sale increased 1.9% m/m but remains 7.6% lower y/y at 2.19 million units, equating to 5.2 months of supply at the current sales pace. The drop in home sales does not bode well for the future.
It was expected that rising mortgage rates would accelerate demand in the near term as potential buyers aimed to lock in mortgages before rates went even higher. That was supposed to pull sales forward into May, June and July, before a payback period developed in the future.
However, that surge has not materialized in the June report. In addition to discretionary shares, the consumer staples sector (XLP) lagged, slipping 0.2%. The broader market was kept from registering larger gains by the under-performance of the energy sector, which shed 0.3% while crude oil fell 1.1% to $106.69 per barrel.
Nevertheless, materials finished among the leaders as industrial and precious metals displayed strength. Elsewhere, banks and health shares were the day’s best performers, with financials advancing for the 10th time in the past 12 sessions. Tech shares also moved higher.
In regards to major trends, the changes were fairly small with the Domestic TTI edging to +3.60% while the International TTI settled at +7.17%.
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