MarketView for April 22

Summary

The major equity indexes were higher once again on Tuesday as a host of solid earnings reports, along with strength in the healthcare sector, helped push the S&P 500 index and the Nasdaq to their sixth straight advance.

Netflix rose 7 percent to $372.90 a day after reporting strong subscriber growth, a sign the stock still had room to grow despite recent valuation concerns. With the day's gain, the stock moved to the plus side for the year after a 21 percent drop in March.

The S&P healthcare index was the best performer of the 10 major S&P sectors with a one percent gain. Allergan rose 15.2 percent to $163.65 a day after William Ackman teamed up with Canadian pharmaceutical manufacturer Valeant Pharmaceuticals to bid for the company. Valeant gained 7.5 percent to end the day at $135.41.

A deal between Novartis and GlaxoSmithKline, in which the two traded over $20 billion worth of assets in an effort to cope with healthcare spending cuts and generic competition, also helped the healthcare sector’s performance on Tuesday. Novartis closed up 1.3 percent at $86.56, while Glaxo rose 4.1 percent to end the day at $55.30.

While better-than-expected earnings have lifted stocks recently, companies have largely been exceeding reduced forecasts. Profits are seen rising 1.1 percent this quarter, down from the 6.5 percent growth rate estimated at the start of the year.

Travelers and United Technologies both beat expectations, and United Tech raised the low end of its full-year profit outlook. Shares of Travelers rose 0.6 percent to $86.89 while United Tech added 0.8 percent to end at $119.19.

McDonald's reported an earnings fall along with a decrease in domestic same-store sales. The report sent its share price down 0.04 percent to $99.32.

With 20 percent of the S&P 500 having reported results through Tuesday morning, 63 percent have topped earnings expectations, according to Thomson Reuters data, matching the long-term average. On the revenue side, 51 percent have exceeded forecasts, below the 61 percent long-term average.

After the close, Gilead Sciences rose 1.1 percent to $73.65 after the company reported that its new $1,000 hepatitis C pill generated quarterly sales of $2.27 billion, helping the company's quarterly net profit to nearly triple.

In another positive sign for equities, the Dow Jones Transportation Average .was up 0.6 percent, closing at its first record high since April 2. The index received some assistance from airlines such as United Continental, up 4.6 percent, and Alaska Air, up 1.3 percent, which rose on a 2 percent drop in oil prices.

Facebook rose 2.9 percent to $63.03, helping to lift the Nasdaq 100 and the S&P 500. Credit Suisse upgraded the social networking company's stock to "outperform" on higher expectations for its long-term average revenue per user.

Volume was light, with about 5.88 billion shares changing hands on the major exchanges, a number that was less than the 6.7 billion average numbers of shares so far this month, according to data from BATS Global Markets.

Existing Home Sales Fall Sharply

Existing home sales fell to their lowest level in more than 1-1/2 years during March. However, there are signs that a recent downward trend that has plagued the housing market may be drawing to an end.

The National Association of Realtors (NAR) reported on Tuesday that existing home sales fell 0.2 percent to an annual rate of 4.59 million units. Though that was the lowest level since July 2012, sales were a bit stronger than the consensus of expectations. There was also an increase in supply and more first-time buyers entered the market, key ingredients for a strengthening in activity. A run-up in prices, which has reduced affordability, is also starting to moderate.

The March sales figures reflected purchase contracts signed in January and February, when the country was in the grip of an unusually cold and snowy winter. Sales peaked in July and have declined in seven of the last eight months. While the terrible weather has accounted for some of the slump, a rise in mortgage rates and home prices, and a dearth of properties on the market, also sidelined potential buyers. Compared to March last year, sales were down 7.5 percent.

Minutes of the Federal Reserve's March 18-19 policy meeting noted the softening in housing activity, with some officials saying the jump in mortgage rates last year might have produced a "larger than expected reduction in home sales."

The 30-year fixed mortgage rate, which peaked at 4.49 percent in September, averaged 4.34 percent in March. A year ago it stood at 3.57 percent. The Fed is dialing back the amount of money it pumps into the economy through monthly bond purchases and is not seen raising benchmark interest rates before the second half of 2015.

Residential construction has also fallen in recent months. Investment in home building was a drag on growth in the fourth quarter for the first time in three years, and it likely undercut gross domestic product in the first quarter as well. First-quarter growth is seen around a 1.5 percent annual pace, a sharp slowdown from the 2.6 percent rate logged in the fourth quarter of 2013.

While housing is lagging the snap-back from a winter-induced lull, it could be close to finding a bottom. Leading housing market indicators such as contract signings and mortgage applications are showing signs of stabilizing. Real estate brokers are also seeing some signs of a pickup in demand.

The NAR said the inventory of unsold homes on the market rose 4.7 percent from February. With sales falling, the months' supply rose to an 11-month high of 5.2. A 6.0 month supply is normally considered as a healthy balance between supply and demand.

First-time buyers accounted for 30 percent of the transactions, the largest in a year and an increase from 28 percent in February. A market share of 40 percent to 45 percent for first-time buyers is considered by economists and real estate professionals as ideal.

With inventory still tight, the median price for a previously owned home rose 7.9 percent from a year ago to a six-month high. The pace of acceleration is, however, slowing. A shortage of properties also means houses are being snapped up quickly. About 37 percent of homes sold in March were on the market for less than a month.