MarketView for February 22

Summary

Banks led the financial markets lower on Wednesday as the S&P 500 index stalled near a 10-month-high after signs of weak European business activity rekindled concerns about a recession overseas. Therefore, it was not surprising that banks were the S&P 500's worst performing sector. The fear was that the weak euro zone growth would hamper countries dealing with heavy debt loads and leave banks exposed to those debts. So, the result was that data indicating possible weakness in the euro zone services and manufacturing sectors overshadowed the day-old deal to bail out Greece.

As a result, the S&P 500 index failed again to hold above 1,360, the high reached last May and a key resistance point that could spark further gains if broken. The benchmark index is up about 8 percent for the year and gained more than 20 percent from its October lows.

Oil services companies rose, partly offsetting the decline by banks. Drilling contractor Nabors Industries rose 7 percent to $21.78 a day after its operating results exceeded Street expectations and as the chief executive detailed a retooling of the company.

Home builder stocks fell despite a resurgence of domestic home re-sales, which reached a 1-1/2 year high in January but came in below Street expectations.

Dell was one of the largest drags on the S&P, falling 5.8 percent to close at $17.10 in volume that was 2.5 times above its recent daily average. The world's No. 3 personal computer maker forecast revenue below expectations late Tuesday.

After the market's close, shares of Hewlett-Packard fell 1.4 percent. The company reported quarterly revenue below expectations.

About 6.3 billion shares changed hands on the three major equity exchanges, a number that was sell below last year's daily average of about 7.8 billion shares.

According to Thomson Reuters data through Wednesday morning, of the 424 companies in the S&P 500 that have reported earnings, 64 percent have topped analysts' expectations, which is below the 70 percent beat rate for the past four quarters but above the median of 62 percent since 1994.

Home Re-Sales Highest Since May 2010 

Home re-sales hit a 1-1/2-year high in January, sending the supply of properties on the market to its lowest level in almost seven years, a hopeful sign for the housing sector. According to a report released by the National Association of Realtors on Wednesday, existing home sales increased 4.3 percent to an annual rate of 4.57 million units last month, the fastest pace since May 2010.

It was the latest indication the housing market may be coming off the floor. While economists attributed some of the rise to unseasonably warm winter weather, they also said it signaled genuine improvement.

Sales were up across all four regions of the country, with the West recording the biggest gain -- an 8.8 percent increase.

The tenor of the report was weakened somewhat by a sharp downward revision to December's sales data to show only a 4.38 million unit sales rate rather than the previously reported 4.61 million unit pace.

A brightening economic outlook, marked by a strengthening labor market and buoyant factories, is giving the housing market some lift. Confidence among homebuilders is near five-year highs and they are breaking more ground on new housing projects. Residential construction is expected to contribute to growth this year for the first time since 2005.

The housing market had been held back by an overhang of unsold homes, but steady sales gains are helping to whittle down supply. The inventory of unsold homes on the market fell 0.4 percent to 2.31 million last month, the lowest since March 2005. That represented a 6.1 months' supply at January's sales pace, the lowest since April 2006 and down from 6.4 months in December. A supply of six months generally is considered ideal.

While inventories tend to fall in winter and the decline last month could also be reflecting delays in the process of bringing foreclosed properties to the market, there is some real improvement underway.

The homeowner vacancy rate, which is closely correlated to the month supply, fell to 2.3 percent in the fourth quarter of 2011 from 2.4 percent in the prior three months. The rate peaked in 2008.

The median home sales price in January fell 2 percent from a year ago to $154,700. That was the lowest since November 2001. Distressed properties, foreclosures and short sales, which typically occur at deep discounts, accounted for 35 percent of overall sales last month, up from 32 percent in December.

A third of pending existing home sales contracts were canceled, the NAR said. Investors bought 23 percent of homes in January, with first-time buyers accounting for a third of the transactions.