The market appears to have lost some of its stride in the last few days as China growth worries have come to the fore even as readings of the U.S. economy continue to show resilience. But stocks don’t move in one direction only and a period of rest and recuperation following the impressive sprint from the October lows shouldn’t be such a huge surprise.
Today’s trading action may not be much different from what we have been seeing lately, though the pronounced downward bias of the last few days may not be as apparent today given the absence of any China headlines. The February New Home sales data on deck for release a little later may also help sentiment a bit. But the ‘weather question’ will most likely undercut a positive surprise in today’s housing numbers.
New Home sales are expected to have increased again in February, the fifth such gain in the last six months. These gains corroborate favorable indicators elsewhere in the sector from Housing Starts and Permit to Builder Sentiment. But this year’s unseasonably warm winter has stoked skepticism with the housing ‘green shoots’. In fact, some are going to the extent of questioning even the labor market gains of the last few months, giving weather the credit for a fair share of the improvement.
This debate is unlikely to be settled in the February and March data, but will get sorted out as the Spring data rolls out. I am not buying into the weather-is-driving-the- improvement narrative, but will nevertheless keep an open mind and let actual data settle the argument for me. In the meantime, I think it’s only fair to credit the economy for all positive data and not weather.
In corporate news, we got an earnings and revenue surprise from Darden Restaurant (DRI), the operator of Olive Garden and Red Lobster chains, this morning. The strength this quarter reflected the same-store sales growth at Olive Garden, which has been struggling for a while now. As with the economic data above, many will likely question whether the Olive Garden improvement resulted from the measures management had put in place or purely due to favorable weather. Homebuilder KB Home (KBH) came out with a narrower than expected loss, but its order book turned out to be weaker than expected. Nike (NKE) and Micron Technology (MU) reported after the close on Thursday, with the sneaker maker swooshing past expectations while the chip-maker coming up short.
New Home Sales are scheduled for release today at 10:00 AM EST. In January, New Home Sales decreased by 0.9% to 321,000 from the revised December rate of 324,000.
To read this article on Zacks.com click here.
Zacks Investment Research
