February 22, 2017

Stocks opened mixed this morning (Dow +3 pts; SPX -.18%). The Dow very briefly touched a record intra-day high of 20,766. Gold miners and transports are down more than 1%. Energy stocks are also lower in early trading. There are a few stand-outs (TOL +5%, AET +1.4%, FB +1.8%, DOW +3.6%) but most stocks are taking a breather. Most commodities are also lower today. WTI crude oil is down 1.4% to $53.50/barrel. Bonds prices are mostly unchanged. The 5- and 10-year Treasury yields are hovering around 1.90% and 2.42%, respectively.  

US existing home sales surged a better-than-expected 3.3% in January from prior month levels. There were an annualized 5.69 million home purchase transactions in the month. That’s the highest level since early 2007. December numbers were revised up a bit as well. 
The nation-wide median existing home price was $228,900, up 7% y/y. Home prices are rising in part because for-sale inventory across the country is very low. It’s possible that January looks so strong because would-be homebuyers are trying to snap up properties before interest rates move any higher. According to Bankrate.com, the average 30-year fixed mortgage rate is 4.05%. 

Toll Brothers (TOL) reported fourth quarter results that topped Wall Street forecasts. While revenue fell 1% from year ago levels, earnings per share rose 6%. More importantly, orders for new home construction surged 22%. The CEO said “pent-up demand of the past seven years may be starting to release, bringing more buyers into the market.” So the stock is up 5% this morning. 

Bloomberg reports the planned merger of Dow Chemical (DOW) and DuPont (DD) will likely be approved by European regulators as soon as next month. Both stocks are up about 3.5% at the moment. 

CNBC Contributor Jim Cramer says corporate earnings are clearly improving and in many cases results are better than Wall Street expected. Consequently, he believes stocks are not over-valued at current levels. As evidence, he points to this: even though Procter & Gamble (PG) is the highest P/E stock in the consumer staples sector, a sophisticated activist investor just took a huge stake in the company. So clearly he doesn’t think it is over-valued. “Are we paying too much for forward earnings, or are we paying too much for current earnings?” In other words, the future is looking brighter. 

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