Housing could send stocks higher

The week ahead starts with Apple's plans on what to do with its cash. It features earnings from Oracle, Nike, Lululemon, FedEx, Tiffany and General Mills. A host of housing reports may give stocks a push. Watch interest rates and oil prices.

By Charley Blaine Mar 16, 2012 9:11PM
Charley BlaineUpdated: 11 p.m. ET Sunday

For the last few years, it has been housing's lot to bring the stock market back to Earth.

It certainly has the potential to splash reality in investors' faces in the week ahead when reports on existing- and new-home sales come along with the monthly reports on housing starts and building permits.

But if the numbers break right -- with all the indicators showing clear signs that a bottom for housing has set in -- one could reasonably see a continuation of the big rally that pushed the Dow Jones industrials ($INDU) above 13,000 this past week.

The week ahead, in fact, is a busy one for investors. It starts with Apple's (AAPL) 9.a.m. ET conference call on what it may do with more than $100 billion in cash. The betting is its first dividend. In addition to Apple and the housing reports, a batch of important earnings are due that include results from Adobe Systems (ADBE), Oracle (ORCL), Tiffany (TIF), General Mills (GIS), Nike (NKE) and FedEx (FDX).

Article continues below.
And there will be many eyes on two more factors in the coming week: oil prices (and gasoline prices) and interest rates. Crude oil closed Friday at $107.06 a barrel, with retail gasoline at $3.831 a gallon. Crude is up 8.63%, while gasoline is up nearly 17%. Can gasoline prices hurt the economy? They did a year ago and helped set off the Great Recession.

Interest rates started to move up as well, with the 10-year Treasury hitting 2.298%, up from 1.871% at the end of 2011. The question is whether the increase will bother anyone -- yet.

It was a very good week for stocks. The Dow and Standard & Poor's 500 Index ($INX) were up 2.4% for the week, with the Nasdaq Composite Index ($COMPX) up 2.2%. The Dow and S&P 500 are enjoying their best start for a year since 1998; the Nasdaq's start is its best since 1991.

What will Apple do with all that cash?
Apple announced the scheduling of its conference call on Sunday evening. Apple had more than $97 billion in cash and short-and-long marketable securities on its balance sheet at the end of December, up from roughly $59 billion a year ago.

Most media reports were betting on a regular dividend. Bernstein analyst A. M. Sacconaghi told The New York Times that a dividend of 2.5% was a good possibility. It could be financed from domestic profits or even small borrowings and would not threaten the 66% of the cash horde that is held in overseas subsidiaries. To bring it into the United States would trigger repatriation taxes.

Apple has been under pressure to put more of the cash to work or return it to shareholders. CEO Tim Cook said on a conference call in January that executives were studying how to deal with the issue. And, he conceded, the company has more cash than it needs to run the business.

The late Steve Jobs had opposed dividends and stock buybacks.

Will housing stop being a drag on the economy?
Housing has been one of the biggest drags on the economy since the bubble started to burst in 2006. Housing markets have been struggling with foreclosures, bloated inventories of new  and existing homes and condominiums for sale and weak household formation rates.

And there have been suggestions from a number of homebuilding companies that buyers are out looking for homes this year in greater numbers than in the past few years. Apartment construction has been stronger as many would-be buyers have opted not to own because they want the flexibility.

Inventories have been shrinking in places like Phoenix and Sarasota as investors large and small have swooped in to pick up foreclosed properties that they can rent or fix up and try to resell.

And that's as it should be. Apartment construction gains usually precede gains in new-home building by nine months to two years before single-family construction starts to gain. And prices often continue to fall even as the bottom forms.

So, these are the reports to watch on housing:

Monday: The National Association of Home Builders Market Index. This is a measure of builder confidence. It rose to 29 in February from 25 in January. It's still a depressed level; a reading of 50 or more is a clear signal of overall builder confidence.

Tuesday: Housing starts and building permits for February, due from the Commerce Department. Permits, which turn into homes started, are expected to come in at about 700,000, with the abnormally warm winter providing an extra jolt. A number above 700,000 will be a signal that more than weather is pushing permits.

Wednesday: Existing-home sales, due from the National Association of Realtors. The IHS Global Insight expects an annualized sales rate of 4.6 million units, with gains of single-family home sales offsetting declines in condominium sales. Also, see if home-purchase applications rise in the weekly mortgage application report from the Mortgage Bankers Association.

Thursday: The Federal Housing Finance Agency's monthly home-price index report. This should show a decline, but the rate of decline is what's important. Smaller is better.

Friday: New-home sales, due from the Commerce Department. This report should show sales at an annualized 325,000 units. This is only just above disastrous. But it also means that inventories are getting utilized.

Also due next week are the weekly report on jobless claims and The Conference Board's report on leading economic indicators in February.

There will also be a number of economic reports from Europe that could move U.S. markets, including reports on consumer confidence and factory orders in Europe, due Thursday. Reports on produce and consumer price inflation in Germany are due Friday.
 
Markets for the week



3/16/2012

3/9/2012

% chg.

YTD chg.
Dow Industrials

13,232.62

12,922.02

2.40%

8.31%
S&P 500

1,404.17

1,370.87

2.43%

11.65%
Nasdaq 

3,055.26

2,988.34

2.24%

17.28%
Russell 2000

830.18

817.00

1.61%

12.05%
Crude oil 

$107.06

$107.40

-0.32%

8.33%
(per barrel)











U.S. Dollar Index 

80.08

80.08

0.00%

-0.55%
10-yr. Treasury

2.30%

2.04%

12.76%

22.82%
Gold

$1,655.80

1,711.50

-3.25%

5.68%

A surprisingly important week for earnings
There aren't a lot of earnings reports this week, but there are some important ones. And they may shed some light on corporate activity going forward.

The fourth-quarter earnings season has just about ended, and profits haven't been as good as expected. Thomson Reuters estimates S&P 500 companies will report $231.9 billion in profits for the quarter, down from an estimated $245.7 billion at the start of the quarter.

Apple's (AAPL) profits were so big that an overall growth rate of 9.4% for the quarter shrinks to 6.3% if Apple's profits are taken out.

Here are the key reports of the week:

Monday: Adobe Systems (ADBE). The company expects 54 to 59 cents a share in earnings after one-time items are taken out. It has boosted guidance for fiscal 2012.

Tuesday: Tiffany (TIF) and Oracle (ORCL). Tiffany cut its guidance for fiscal-fourth-quarter earnings because of weakness in Europe and elsewhere. What it says about Europe will be very important. Oracle is struggling with intensifying competition from SAP (SAP) and others after the loss of Hewlett-Packard (HPQ) as a key partner and problems with sales at its hardware business, acquired when it bought Sun Microsystems. The stock, however, is up nearly 16% this year.

Wednesday: General Mills (GIS) and Discover Financial Services (DFS). Worried about inflationary pressures other than oil? General Mills will tell you if you should be.

Thursday: FedEx (FDX), Accenture (ACN), Lululemon Athletica (LULU) and Nike (NKE). FedEx is widely watched as a leading economic indicator. Accenture is a bet on corporate tech spending. Lululemon is a hot fitness apparel retailer. And Nike is expected to have a great year because of the Summer Olympics in London and the buildup to the World Cup in soccer in 2014. With Nike, pay less attention to reported earnings. Focus on its future orders, which come near the end of its earnings report.

Friday: Darden (DRI) and KB Home (KBH). For the parent of the Olive Garden, Red Lobster and other chains, a key question is whether gas prices are affecting business. KB Home shares are up 90% this year, part of a big Wall Street bet on housing. If the housing data are bad and KB Homes results miss estimates (a loss of 23 cents a share), the stock could crash.
57Comments
Mar 19, 2012 1:43AM
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Stop the bipartisan nonsense. Democrats and Republicans both screw us over.

Who do you think is funding democratic campaigns? It's not poor people. And why do the rich fund their campaigns? You don't think they expect something in return? Naivety knows no bounds.

The Democrats would also like to increase taxes incrementally until there is nothing left to tax..and then redistribute it to us according to their whims. But you know what happens when your money goes through a middle man, right? It's just like insurance or a stock broker...they get their cut.

The Republicans want to keep taxes very low. Great...except they don't want to stop spending either. How is that supposed to work? If you run the deficit high enough, you devalue the dollar and reduce the spending power and net worth of every American...in essence, it's an indirect tax not unlike what the Democrats would do.

Wake up and focus on the real problem, which is government waste and corruption. For everybody that is convinced that a specific party is the problem, the joke is on you!
Mar 17, 2012 12:19AM
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Home prices must be in line with wages. Until this happens the market will flounder, no matter how much we prop it up.
Mar 16, 2012 10:45PM
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The root of the problem with the housing market's rebound is the lagging employment sector of the economy. Part time work, McJobs, and contract employment are not conducive to rebuilding the middle class. 
Mar 16, 2012 10:43PM
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There is no shortage of pundits trying to talk the housing market up.  Housing cannot bottom until weak sellers are washed out.  It will take time.
Mar 16, 2012 11:53PM
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Fannie Mae and Freddie Mac are like the other show waiting to drop,  the Fed can't give up their bad habits of printing money and the cockaroaches in the congress cannot stop the spending and the beloved Mysery Man canot help but add to the deficit and get in the way of progress. 

We are creating another fiscal bubble and this time we won't have any reserve...this is like idiots delight and we have inept clowns leading the way.

Mar 19, 2012 6:43AM
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The only thing that  has happened in the markets is it  only recovering pass losses. There is no gain till you pass a all time high!! If you take it away and then give it back is not a real gain in anybody's booking system!!
Mar 17, 2012 1:31PM
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The Chief Lunatic has said he will put unsold Homes into Public Housing for the poor. That would mean the middle class family playing by the rules and paying on time for their Home that has lost one third or more of its value. Will be driving by public housing with overgrown yards and Garbage overflowing on the street and dead cars in the driveways.
And his tax money is paying for it.
The more we learn the more we can believe these radicals in the whitehouse want the destruction of our middle class to
redistribute and bring socialism to the U.S.
As I always say the people are getting the screwing they voted for.
Mar 19, 2012 8:33AM
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The stock market does not represent the US economy!  It is a high-tech gambling casino with the deck stacked against small investors.  Didn't the 2008 crash teach anyone a lesson?  If anyone cares to know the truth behind the facade of Wall Street read "The Myth of the Rational Market"  and see who has your money that you lost in 2000 and 2008.  Wakeup!  Sovereign Wealth Funds and the superrich 1% keep adding to theirs reserves from your pocket via investment bankers, traders, and the US stock market.

 

The real economy or the US industrial economy along with its good paying jobs were all sold over four decades to foreign countries by politicians of the one party that glorifies deregulation and hates the idea of protection for American jobs.  Guess which party that is?

Mar 19, 2012 8:36AM
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America financially will only recover once the Housing Industry recovers. This industry effects virtually all wage earning Americans.

 

 

 

 

 

Mar 18, 2012 10:02AM
Mar 17, 2012 9:30PM
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Housing prices are still grossly inflated.

Now is NOT  the time to buy as prices are falling.
Mar 17, 2012 1:53AM
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' Apartment construction has been stronger as many would-be buyers have opted not to own because they want the flexibility. '

Right.  The 'flexibility' of America being in a depression.


Mar 16, 2012 10:56PM
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Reality check for some of you "fair wage" proponents...  Appears lately they don't NEED American "consumers" like you thought.  Speculators, if that's who is driving up the price of oil, are proving this everyday.  The whole "who's going to buy the product if nobody has a good job?" argument doesn't seem to be holding water.  Someone has a good enough job somewhere.

Price of price of stocks, 10, 20, hot ones, housing in the US, Japan, China...  They don't need you to pump this stuff up.  It looks more and more each day the USA is headed third world, only world, into the future regardless of whos fault is it.

Mar 17, 2012 12:02AM
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The experts are all saying gas prices are going to take out a real bite.  If that were true, if gas prices were truly hurting everyone, you would not see so many drivers just absolutely tearing it up on the roads like there is no tomorrow.  Stomping on the gas from dead stops, running around like cats on a hot tin roof, it's obviously not that painful to most.
Mar 16, 2012 11:41PM
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SInce when does an entire economy depend on such a specific subpart as the housing market? Oh yes, since the corporate intellectual midgets going after profit at any cost shipped all the decent jobs they could to places where it was going to "cost less".

 

Now the only way to employ all the people who used to do something in a shop or factory is to have them build 300k houses, on what used to be farmland, that some overstretched family will be made to believe they can afford, variable interest financial tricks to boot. The insane are in charge of the asylum and the results are showing. Some long term thinking, some vision of the whole picture these bufoons have. Eventually this will come back to bite them in that part of themselves they love most.

 

Every socio-economic system can be self destructive, even capitalism. Too bad none of the clowns in charge realize that.

Mar 17, 2012 1:10PM
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Just as the unemployment numbers the Government puts out of 8%-9 And most know it is closer to 19%. Its hard to believe that there is improvement in Housing. In fact we are reading that another drop in prices is coming.

 

the National Association of Realtors.
Federal Housing Finance Agency's monthly home-price index report.
 the Commerce Department
And there have been suggestions from a number of homebuilding companies that buyers are out looking for homes.

 

I cannot believe any of the sources above as they all have a motive for adjusting numbers to their advantage. Try

Florida, many homes in good neighborhoods are in foreclosure or abandoned.

 

This administration just keep borrowing and spending and nothing has improved. We are far worst off. Our people are hurting and they just keep borrowing to give billions of our dollars to other countries, the International Monetary Fund, United Nations. And even China!

We tax payers are footing the bill and we cant seem to stop this government from driving us further in debt.

Mar 19, 2012 9:35AM
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Charley, The idea that Housing will lead the market higher is preposterous. With interest rates at all time lows real estate prices continue to drop at least 4-6% . When interest rates start going up (after the election) watch out. Also, there is a backload of 3 million foreclosures (that haven't even been released by the banks yet!) As far as the market is concerned, this is an election year and politicians on both sides will try to run it up. That being said, the market is primed for a huge drop, whoever wins the election will impose austerity measures on the American people, higher taxes, reduced services, which will drive the market back to 2009 prices or lower.
Mar 19, 2012 9:33AM
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Stop financial forgiveness. Housing lost and so did investors, pay up. Bankruptcies should stop too. These folks spent it and should have to pay it back. Bet this gets a lot of thumbs down from guilty consciences.

 

 

No in not a fat cat I live on 48k a year and never shoved a dime up no ones butt.

Mar 18, 2012 11:16PM
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Why are some of you such poor problem solvers and unable to gather information on your own? You love the word liberal, but you seem to think there are no liberals owning business and you seem to think there are no republican teachers, etc. You seem to think there are no liberals in the military either. Strange assumptions. Anyway, you then say the housing problems were caused by liberals and legislative changes (which if you read the bill you will see that it sets goals and also states that the lending institutions must lend within the good business practices that insure solvency). Most off those creative lending programs were not created by the bill or Congress but the lenders. So, when did poor people buy second homes, rentals, flippers, and million dollar homes? Many loans had the closing costs rolled into the loan, that means that the taxpayer footed the bill for the real estate agent, builders, inspectors, appraisers, title company and any other person that got paid off the transaction. Hey, were any of them Republicans? ha  Who gets paid the PMI insurance...when there is a default?
Mar 17, 2012 12:34PM
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I'm sure the news will be that "new home sales are up, existing home sales are up, building permits are up, construction loans are up and more of the same old BS. When are the 5 foreclosures that i have in my neighborhood since 2010 going to sell?
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