Tuesday, August 19, 2014
Positive housing data, benign inflation readings and a less worrisome geopolitical backdrop will contribute to a positive open for stocks today.
Today's housing data surprised to upside, with both Starts and Permits for July coming ahead of expectations after two months of coming short of estimates. This comes after Monday's homebuilder sentiment index coming in better than expected and approaching the index's January high for the year.
Starts moved back above the one million mark in July - up +15.7% to 1.093 million on a seasonally adjusted annual basis - while the June Starts numbers were revised higher. The gains were concentrated in the less desirable multi-family structures, but are nevertheless welcome change from the steady loss of momentum in recent months. Housing Permits, a leading indicator of future demand, also came in better than expected - up +8.1% in July after the -3.2% decline in June.
In-line with the positive home construction numbers, we got a better-than-expected earnings report from Home Depot ( HD ), which beat on the top- and bottom-lines and guided higher. The Q2 strength was more than would be expected from the typical seasonal rebound in Spring categories, with U.S. comps increasing +5.8%. Home Depot's strength will likely rub off on Lowe's ( LOW ) as well, which reports on Wednesday, though Home Depot has been an outperformer all along. Housing-related retail appears to be the only bright spot in an otherwise grim retail space and today's home construction report will further strengthen that trend.
Director of Research