MarketView for April 25

Summary 

If volume measures success or opportunity on Wall Street then Monday was a depressing day as trading volume was the lightest of the year. Share prices fell as a result of a lowered guidance number from Kimberly-Clark, the key concern being that higher commodity costs are squeezing, and will continue to squeeze, profits in coming quarters. Kimberly-Clark, maker of Kleenex tissue and Huggies disposable diapers, is among those companies most vulnerable to rising commodity costs because its products contain both oil-based materials and paper.

The threat of rising commodity costs will remain in the spotlight for one of the busiest weeks of earnings, with 180 S&P 500 companies scheduled to report this week, including other major consumer names like Procter & Gamble and Colgate-Palmolive.

About 5.34 billion shares changed hands on the three major exchanges, a number that was below the daily average of 7.74 billion shares. Meanwhile, Kimberly-Clark closed down 2.7 percent to close at $64.24 after it cut the low end of its full-year outlook because the costs of pulp and other goods rose more than twice as much as it had expected.

Johnson Controls fell 2.8 percent to close at $39.60 after the company, one of the world's largest auto suppliers, said its fiscal third-quarter results would be hit by a fall in automotive production following the earthquake in Japan. Japan's earthquake has disrupted the supply of auto parts and forced auto companies to idle plants.

Through Monday, 75 percent of the 151 companies in the S&P 500 that have reported results have exceeded Street expectations. That is just above the average over the past four quarters but well above the average of 62 percent since 1994, according to data from Thomson Reuters. And this week is another hectic one for earnings, including Amazon.com, Coca-Cola and Microsoft, along with a host of energy companies such as Exxon Mobil and Chevron.

The Nasdaq moved slightly higher, thanks to SanDisk, which ended the day up 1.6 percent to close at $49.78 after raising its 2011 margin outlook late Thursday.

However, energy and materials companies' shares ranked among the worst performers as oil prices moved lower as a sell-off in silver from near record highs lifted the dollar off its lows, prompting a bout of profit taking in crude. The CBOE Volatility Index rose 7.4 percent after falling last week to its lowest level since 2007. 

The week's agenda includes a two-day meeting of the Federal Reserve's policymaking committee on Tuesday and Wednesday. Fed Chairman Ben Bernanke will hold the first of four annual press conferences on Wednesday after the Federal Open Market Committee's meeting ends. Wall Street will look for clues about the direction of monetary policy when the Fed's bond buying program ends in June.

New Home Sales Up

New home sales were higher in March and the number of new properties on the market hit their lowest point since the 1960s, but further gains will be hampered by the broader property glut. According to a report released by the Commerce Department on Monday, single-family home sales rose 11.1 percent to a seasonally adjusted annual rate of 300,000 units, up from a near record low pace of 270,000 in February when harsh winter weather hit the economy. The number also exceeded Street estimates although there was little effect on the major equity indexes.

The market for new homes is being squeezed by competition from previously owned homes and a deluge of foreclosed properties, even though inventories of new properties in March fell to 183,000 units, the lowest since August 1967. Builders, hurt by the weak market, are holding back on new home construction.

While housing now accounts for a fraction of gross domestic product, indications that it continues to struggle may weigh on consumer confidence and have a negative impact on spending. Standard & Poor's Ratings Services described conditions for U.S. homebuilders as still tough and said it did not expect a significant improvement until next year.

Existing home sales rose to an annual rate of 5.10 million last month. The new home market accounts for less than 10 percent of the overall housing market. Underscoring the risks for new homes, distressed properties accounted for 40 percent of existing home sales last month. Such sales typically occur at 20 to 30 percent below value.

The overall housing market has been hamstrung by a scarcity of jobs and will likely continue to cast a shadow over the broader economy. Bad weather depressed new home sales in the first two months of the year and held back building activity.

A recovery for the new home sales market remains far off. The median sales price for a new home fell 4.9 percent in March from a year earlier to $213,800. The spread between the prices of new and previously owned houses is now about $54,200, off a record high of $80,500 reached in January. At March's sales pace, the supply of new homes on the market fell to 7.3 months' worth from 8.2 months in February.