It was another wild run for the bulls in New York, in more ways than one on Tuesday. In the middle of the day, a large bull that was headed to a slaughterhouse escaped in Queens, NY.  After a wild chase, the bull was finally captured, but it died perhaps from the dozens of tranquilizer darts used to slow his romp.

Meanwhile, the bull romping on Wall Street is eating tranquilizer darts for breakfast; more and more, it’s eating doubt and gaining fans. Those fans are seeing more fundamental justification and underpinnings for this rally. 

Yesterday’s session began with strong results from brick-and-mortar stocks, including Walmart (WMT) and Home Depot (HD), and news out of Europe was very impressive as well.

Europe Erupting

While some would like to see America become an economic island, the fact is that the global economy is here to stay, and it appears the United States is having a positive impact.

The most recent evidence is the surge in purchasing manager data in Europe. The Markit Eurozone PMI number spiked to 56.0, the highest in 70 months. It is driven higher by its two largest economies (Germany and France), where prices rose to their steepest level since July 2011. The key is that they were successfully passed along to consumers.

• Germany PMI 56.1, driven by manufacturing
• France PMI 56.2, driven by service economy

Overall, all facets of the report were robust:

• New orders highest from April 2011
• Backlog sharpest increase in 69 months
• Employment at best level since August 2007

A ripple started in the global economy last summer, and it is now a riptide that’s rippling around the world.  I think it keeps stock markets on the move to the upside; sooner or later, that will create jobs in this country as well.

However, I am not sure if it’s not too late, and how much more the immigration question will weigh on the continent; this surge in the economy might be enough to blunt the wave of populism that sparked good vibrations in America in the first place.

More Evidence              

Last week, I underscored metals as a proxy for global economic growth, but we must always look at the price of crude oil as well.  There are a lot of elements and factors that go into the price of crude, including supply glut, currency, and demand. 

Moreover, higher demand is the main driver and that could be picking up. West Texas Intermediate (WTI) rallied $0.73 to $54.27, which puts it up against huge resistance and a potentially monumental breakout point.  A move past this hurdle could lift WTI to $60.00, but that means big drawdowns in crude and gasoline over the next few weeks.

Today’s Session

The market continues its amazing run, and today the focus shifts to the housing market.  At 10:00 we get existing housing data which represents the largest part of housing.  Although, many believe new home sales better reflect the state of mobility for the economy because recent Pending Homes Sales came in better than expected. The street is looking for annual rate for existing 5.58 million from 5.49 million in December.

In either case, the lack of supply has been a hindrance for the entire industry, layering on higher interest rates since there are clear hurdles for the industry.  The big question is can they be offset with certain tailwinds?   According to Toll Brothers the answer is “yes.”

Toll Brothers

Toll Brothers reported earnings at $0.42 a share on revenue of $920.7 million beating consensus of $0.40 and $903.8 million.  Interestingly, the luxury home builder saw its average selling price and margins pullback, mostly as a result of product mix and recent acquisition.

These are the most compelling comments from management:

Momentum

“Contracts (in units) were up this quarter in five of our six regions: California, the West, South, Mid-Atlantic and North. Despite of the interest rate rise at the end of 2016, our results, encouragingly, showed acceleration in contracts from November to December to January this quarter.”

Supply

“The housing market continues on its path of steady growth.  Total Housing Starts rose in 2016 to approximately 1.2 million units, the highest level since 2007.  However, despite this increase, nationwide housing starts remain well below historic norms of 1.6 million annually, even as population has continued to grow over the past decade.”

Pent Up Demand

“The pent-up demand of the past seven years may be starting to release, bringing more buyers into the market, especially in the move-up segment, where rising home values are giving buyers more equity when they sell their homes in order to move up.  The leading edge of the millennial generation has begun to form families, have children and buy homes.”

Virtuous Cycle

“With low employment and home price appreciation strengthening personal balance sheets, the Dow Jones Industrial Average surpassed 20,000 for the first time. We believe the housing outlook for 2017 remains favorable.”

So Toll Brothers sets the tone with the stock coming off, a classic cup and handle formation up yesterday on strong volume.  It could test the next major resistance point of $33.00 today.

 

Comments

Yesterday Varney had a segment with Beckel on misuse of pain meds. THERE IS AN ALTERNATIVE. Hypnosis. HOWEVER, the medical profession and the psychology and the legal establishments will visit the service provider and burn their house down. No joke. Nevertheless, there is a drug-free alternative. Al M. on 2/24/2017 6:05:53 AM

Tweet

 

Home | Products & Services | Education | In The Media | Help | About Us | Disclaimer | Privacy Policy | Terms of Use | All Rights Reserved.