Thursday, July 26, 2012

Better Economic News ...

The market opened much higher with the S&P 500 furiously jumping above what we have viewed as the critical level, 1340; it is at 1360.2 right now, up more than 22 points!  Such a strong start can be attributed to the ECB Chief, Draghi, saying they will not quit trying to save the Euro, and from better than expected initial jobless claims and June durable goods orders.

Initial jobless claims came in significantly below expectations which is good news for the equity market this morning.
  • Initial claims came in at 353K, much lower than the 381K estimate.  The prior week's figures were again revised up.
  • The latest dip in claims helped lower the 4-week moving average to approx. 367.25K, down from 376K.
  • Although this is good news, it may be helped by higher temporary positions maintained during the time period, which may not be good news and may explain the volatility we have been seeing in jobless claims this month.

The June headline durable goods orders figure was also impressive.  But don't let the headlines fool you.
  • Overall durable goods orders increased 1.6% versus the Street's mere 0.3% expectation.  May was revised higher by 30bps.
  • However, excluding transportation, new orders dipped 1.1%, much lower than the (0.1)% estimate. 
  • Excluding defense orders, new orders declined 0.7%.
  • Orders for computers and electronic products declined 4.9% in June.  The computers orders dipped 1.5%, while orders for communications equipment went down 4.6%.
  • As mentioned earlier, transportation equipment orders helped overall durable goods orders beat expectations.  Although the nondefense aircraft and parts went up 14.3%, the defense went up even more, by nearly 24%.  One can reach many different conclusions from this, especially given the current geopolitical factors impacting the entire world.
  • Orders for capital goods went up 6.8%, which is good news.  Then again, the nondefense capital goods orders increased 1.2% while defense capital goods went up 62%.

Regarding the XHB ETF, PulteGroup (PHM), a company within the fund, reported better than expected earnings, but missed on the revenues.  Results included EPS of $0.11 versus $0.05 consensus; and revenues of $1.07bil versus the Street's $1.10bil.

Trex (TREX) beat expectations on the top and bottom-line.  EPS of $0.59 came in better than the $0.53 consensus.  Revenues of $94.3MM topped the $90.5MM consensus.

XHB was down 3.4% this week, but it appears that it will pare some of those losses today as it is up 2%.  

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