MarketView for April 24

Summary

The Dow Jones Industrial Average and the S&P 500 managed to chalk up some gains on Tuesday, although the gains for the S& 500 were rather meager, after strong earnings and upbeat outlooks from the likes of 3M. Driving the Nasdaq lower were concerns that Apple might disappoint in its earnings announcement after the closing bell. Those disbelievers could not have been more wrong if they tried.

Shares of Apple reversed course after the bell when Apple reported quarterly revenue that far exceeded Street's estimates. The shares then rose 6.9 percent to $599 in extended trading after closing at $560.28, down 2 percent.

Apple’s shares had fallen in recent weeks after a rather extensive increase in its share price. At the close on Tuesday, Apple's share price was up 38 percent for the year - in contrast with earlier this month, when it was up nearly 60 percent year-to-date.

3M reported an increase in quarterly earnings with a small increase in its guidance going forward sending its share price higher. That combined with AT&T share price increase, sent the Dow higher. AT&T ended the day up 3.6 percent to close at $31.72, while 3M gained 1.6 percent to end the day at $88.49. Shares of United Technologies that also reported better than expected numbers ended the day up 0.1 percent at $79.85.

The earnings season so far has been stronger than expected. With results in from 153 S&P 500 companies, more than three-fourths have exceeded consensus estimates.

The Nasdaq weakened as tech stocks faltered. A good example is Netflix. Its shares fell 13.9 percent to $87.68, a day after it forecast slower subscriber growth this quarter.

Texas Instruments forecast second-quarter revenue growth that was above estimates, signaling the end of a prolonged inventory-related decline in demand. Nonetheless, the results were not enough to counter the broader weakness in tech. As a result, Texas Instruments saw its share price fell 1.7 percent to close at $31.36.

Many analysts have cautioned that a correction is near, given the stock market's sharp rally since October. The S&P 500 is up 9.1 percent so far for the year, a projection I do not agree with. It is quite possible that the S&P 500 will hold at near-term support of 1,340 in the current retreat before rallying again. The index held at 1,340 during a pullback in early March, which coincides with a 23.6 percent retracement of the rally from October. 

Economic data took a backseat to earnings news. Single-family home prices rose for the first time in 10 months in an encouraging sign the battered sector was starting to stabilize, according to the latest S&P/Case-Shiller report.

Separately, the government said single-family home sales fell to their lowest level in four months, but sales in the previous three months were revised higher. Consumer confidence edged slightly lower in April, according to a report from the Conference Board, a private research group.

About 6.2 billion shares changed hands on the three major equity exchanges, a number that was below the 6.8 billion share average daily volume so far this year.

The Housing Market Could Be Stabilizing

The housing market is seeing hints of stabilization, with February home prices rising for the first time in 10 months, according to the S&P/Case-Shiller composite index of 20 metropolitan areas. The index gained 0.2 percent in February when compared to January on a seasonally adjusted basis. It was the first time prices have been up since April 2011. That gain was itself an anomaly in a string of declines stretching back to May 2010.

Prices in the S&P/Case-Shiller 20-city index fell 3.5 percent year over year, moderating from the previous month's decline of 3.8 percent. Prices dropped in seven of the cities on a seasonally adjusted basis, while prices in two cities were unchanged. On an unadjusted basis, 16 of the areas slumped further. Home prices in Las Vegas and Atlanta were both back to levels seen in December 1996.

Regardless, the report was far from suggesting that problems in the battered sector were over. Average home prices across the country were back to late 2002 levels, the report said, as the non-seasonally adjusted 20-city index fell 0.8 percent to 134.20, the lowest since October 2002.

Robert Shiller, co-creator of the home price index, said the housing market is likely to remain weak and may take a generation or more to rebound. "I worry that we might not see a really major turnaround in our lifetimes," Shiller was quoted as saying, calling the day's home price data a mixed bag.

A separate, government report showed new single-family home sales fell in March to their lowest level in four months, but sales in the prior three months were revised higher.

The Commerce Department said March sales slipped 7.1 percent to a seasonally adjusted 328,000-unit annual rate. February's sales pace was revised higher to 353,000 units, the fastest pace since November 2009, from the previously reported 313,000 units.

Six years after home prices started to crumble, the housing market remains a thorn in the side of the economy. Ongoing foreclosures, tight credit and a dearth of buyers have kept the sector on the ropes. It is likely that a meaningful recovery in housing is still a long way off and will show a regional disparity as some areas improve more quickly than others.

The beleaguered housing market has also been a concern for the Federal Reserve. The central bank begins its two-day meeting on Tuesday, and investors will be keen for any insight on whether the central bank will provide more stimuli for the economy. The central bank has said previously that it will likely keep rates at ultra-low levels at least through 2014.