MarketView for February 26

Summary

Wednesday saw the major equity indexes end the day virtually unchanged with Wall Street hesitant to do much prior to Thursday’s comments by Federal Reserve Chair Janet Yellen as she addresses the Senate Banking Committee in semiannual testimony about monetary policy. This appearance, originally set for February 13, had to be postponed due to the heaviest snowfall of the season in Washington, D.C.

Meanwhile, shares of the nation’s retailers continued to show life for a second day in a row. Target and Lowe's shares were higher following upbeat earnings, adding some momentum to the S&P 500.

Target's shares rose 7 percent to close at $60.49 after the company reported results. Target said sales and earnings had been affected by a massive data breach and that costs relating to the event could hurt future profits.

Lowe's shares were up 5.4 percent to end the day at $50.72 after the chain not only reported earnings and sales growth but also unveiled an additional stock-buyback program of $5 billion.

The S&P 500 retail index gained 1.4 percent. Wednesday's strong retail performance came a day after upbeat results from Macy's (M.N) and Home Depot (HD.N). Home Depot shares on Wednesday closed up 0.9 percent at $81.71 after rising to $82.71, a lifetime high. Macy's stock jumped 3 percent to close at $57.96, off a 52-week high at $58.65.

After the bell, shares of J.C. Penney gained 12.8 percent to $6.72 after the company forecast more improvement in its comparable sales and gross profit margin this fiscal year.

The S&P 500 once again briefly broke above its 2013 year-end closing level of 1,848.36, which has served as resistance, but failed to hold above that number. The index remained down 0.2 percent for the year. However, the small-cap Russell 2000 index hit a record closing high of 1,181 on Wednesday.

Adding to investor anxiety were developments in Ukraine. Russian President Vladimir Putin put 150,000 combat troops on high alert for war games near Ukraine. 

On the economic front, new home sales surged to a 5-1/2-year high in January, far exceeding expectations. While much recent data has been below forecasts the reason is being attributed to bad weather rather than worsening fundamentals. The housing data could support that interpretation.

The day's decliners included First Solar; whose shares fell a day after the company reported that its fourth-quarter net income fell 58 percent. The company's shares fell 9.1 percent to end Wednesday's session at $52.74.

After-the-bell movers also included Autodesk, whose shares rose 3.7 percent to $56.76 following the release of its quarterly results.

Approximately 6.9 billion shares changed hands on the major equity exchanges, a number that was below the 7 billion share average so far this month, according to data from BATS Global Markets.

Sharp Rise in New Home Sales

The Commerce Department reported on Wednesday that sales of new single-family homes hit a 5-1/2-year high in January, possibly easing concerns of a sharp slowdown in the housing market. According to the Department, sales increased 9.6 percent to a seasonally adjusted annual rate of 468,000 units, the highest level since July 2008.

December's sales were revised up to a 427,000-unit pace from the previously reported 414,000-unit rate. Sales in the Northeast soared 73.7 percent to a seven-month high, while the South recorded a 10.4 percent rise in transactions to a more than five-year high.

These regions along with the Midwest have experienced unusually cold weather that has been blamed for holding back economic activity. Sales fell 17.2 percent in the Midwest, while rising 11 percent in the West. New home sales are measured when contracts are signed.

New homes are a small segment of the housing market, which lost momentum in the second half of last year following a run-up in mortgage rates and a shortage of properties for sale. Higher borrowing costs and home prices mean that properties are less affordable for many, especially as income growth remains tepid.

A separate report on Wednesday showed applications for loans to purchase homes fell 4 percent last week from a week earlier, hitting their lowest level since 1995.

New home inventories are likely to remain lean for a while as builders complain about a lack of lots, materials and skilled labor. With household formation falling sharply last year, housing activity could remain constrained for a while.

The median price of a new home last month rose 3.4 percent to $260,100 from January 2013. The pace of price increases, however, has slowed in recent months. At January's sales pace it would take 4.7 months to clear the supply of houses on the market. That was the fewest months since June and was down from 5.2 months in December. A supply of 6.0 months is normally considered a healthy balance between supply and demand.