MarketView for June 22

Summary  

Share prices took a beating once again on Tuesday in yet another late-day selloff as poor housing figures and the puncture of a key technical level sent share prices tumbling. However, it was a day of low volume trading as the Street awaited the results of the two-day meeting by the Fed’s open market committee. However, what hurt the worst was on the technical side as the S&P 500 index pushed through its 200-day moving average, which had been a basis of support in the last few days.

On the economic front the National Association of Realtors reported sales of existing homes fell unexpectedly during the month of May in the latest of a series of weak economic releases. As a result it was no surprise that the share price of many homebuilders also hit the skids.

Not to be left out of the day’s decline, energy companies also numbered among those whose share prices were on a downward trend amid worries new regulation. Oil drillers briefly spiked after a U.S. judge ruled against a six-month moratorium imposed by the White House on deepwater drilling, but the Obama administration said it will immediately appeal, and the sector fell.

There is always an upside to any down market and on Tuesday you had to look no further than Apple, whose shares ended the day up 1.3 percent to close at $273.56 on the announcement by the company that it had sold 3 million iPads since the product's April launch. In addition, at least two brokerages raised their price targets on the company.

In earnings news, Jefferies Group reported second-quarter earnings that surged past expectations, lifting the stock 6.3 percent to $24.32. But Walgreen fell 6.6 percent to $28.15 after it reported a weaker-than-expected third-quarter profit. After the bell, Jabil Circuit, a manufacturer of electronic circuit boards, rose 8.7 percent to $14.77 in extended trading after the company reported its third-quarter results.

Adobe Systems rose 1.6 percent to $33.25 in extended trading after reporting its second-quarter results. McDonald's fell 1.4 percent to $68.91. Earlier, the Center for Science in the Public Interest threatened to sue the fast food chain if it did not stop using Happy Meal toys to draw children into its restaurants. Burger King fell 1.4 percent to $17.90.

Housing Data Mixed

Sales of previously owned homes unexpectedly fell last month, a decline that was attributed to delays in processing mortgage applications. Existing home sales fell 2.2 percent to an annual rate of 5.66 million units in May, the National Association of Realtors said on Tuesday. The decline was totally unexpected given that pending home sales, which usually lead re-sales by a month or two, rose in April, with the result that a pick-up in sales was expected for June. Pending sales are measured at contract signing while existing sales are logged at contract closing.

 Weak home sales will contribute to a slowing in the economy's recovery, although the final impact is likely to be relatively small. A government program that offered a tax credit to buyers who signed a contract by the end of April and who close by the end of June has helped drive pending home sales higher. Now that April has come and gone, pending sales are expected to drop but existing home sales had been expected to move higher for a few more months.

NAR has warned that as many as 180,000 buyers might be unable to finalize their contracts by the end of this month because of delays in processing mortgages, and were at risk of losing the tax credit. The Senate has been considering a proposal to extend the cut-off date to the end of September but that legislation has become mired in unrelated debates.

While many economists blamed processing delays, the data did fuel some worry that demand for housing might be weaker than previously thought. Government incentives and near-record-low mortgage rates have helped the housing market dig out of a three-year slump.

With the end of the tax credit, new home construction has dropped and government data on Wednesday is expected to show new home sales fell last month. Still, it is likely that a sustainable recovery has taken hold.

Last month, foreclosed properties and short sales accounted for 31 percent of transactions, NAR said, with first-time buyers representing 46 percent. Cash sales made up a quarter of the transactions, well above the normal 10 percent level.

Despite the weak sales, the supply of previously owned homes on the market fell 3.4 percent to 3.89 million units. At May's sales pace, that represented a supply of 8.3 months, compared with April's 8.4 months. The national median home price rose 2.7 percent from May last year to $179,600, the highest since July. Prices were up 4.2 percent from April.

Separately, the U.S. Federal Housing Finance Agency's home price index rose 0.8 percent in April after gaining 0.1 percent in March. Prices, which were stimulated by the tax credit, are likely to move sideways in the months ahead.