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S&P 500’s Record Close Puts Tough 2140 Line in Street’s Sight

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May 19, 2015

Well, another day, another S&P 500 (SPX) record. And now the challenge is 2140, formidable resistance and yet only a whisker away. Intel (INTC) and Apple (AAPL) dominated Monday’s action and tech shares could remain a higher-volume draw today. A letter to AAPL CEO Tim Cook from Carl Icahn, who also tweeted the letter’s point, argued for more aggressive share buybacks and suggested that the smartphone giant’s shares should be worth $240—over 80% higher than where they stood Monday. The call pumped up Apple’s market value by more than $8 billion in a single day. That’s a nice goose for Icahn’s investment of course.

Outside of the tech sector, market attention remains drawn to market interest rates, with the 30-year bond yield again above 3%. Yields, aka interest rates, were pushed higher after a strong reading this morning for April housing starts data. That’s good news perhaps for construction companies but again has a mixed effect on a Wall Street that’s obsessed with interest rates. Remember that “good news” has tended to sink stocks on fears those reports could greenlight aggressively higher interest rates. Defensive positioning and light volumes in bonds and stocks could precede Wednesday’s Federal Reserve meeting minutes release. 

thinkorswim-charts-SPX

FIGURE 1: UNCHARTED.

The S&P 500 (SPX) scored a record intra-day high Monday and closed just off that level. Data source: Standard & Poor’s. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

April Rebound. Construction starts on new U.S. homes jumped 20.2% in April to a seasonally adjusted annual rate of 1.14 million, hitting the fastest rate since late 2007. Starts for the closely watched single-family homes category rose 16.7% to an annual rate of 733,000, the fastest pace since early 2008. The government also revised March's starts rate to 944,000. Starts had moved along at a 1.5 million average clip in the several years leading up to the housing bubble’s 2006 peak, MarketWatch notes. Could upcoming months get even busier for builders? The pace of permits for single-family homes rose 3.7% to an annual rate of 666,000 in April, while the pace of permits for apartments rose 20% to 444,000. But as the swings of weather continue to be worked out in the monthly data, could this figure be revised as well? Stay tuned.

A Little Help from Our Friends. Efforts to perk up China’s and Europe’s economies sent their respective stock markets higher, helping to set a positive early tone for U.S. action. European Central Bank member  Benoit Coeuré said he wasn’t overly concerned about the recent selloff in German bunds and other sovereign debt but considered their move to be part of a normal market correction. He also said the bank will “frontload,” meaning speed up, its quantitative easing asset purchases. But global stock gains were kicked off in Asia, including the biggest gain in nearly four months for the Shanghai Composite following news of a Chinese reform plan.

Not Sure About That Smiley Face Today. Wal-Mart Stores (WMT)—trading down nearly 7% so far this year—moves lower in early action after the world's largest retailer missed Street expectations with fiscal Q1 profit and sales. Earnings fell to $3.34 billion, or $1.03 a share, from $3.59 billion, or $1.11 a share, in the same period a year ago. Revenue slipped to $114.83 billion from $114.96 billion—a higher dollar did play a part. Same-store sales for Walmart U.S. increased 1.1%. For Q2, WMT offers a wide EPS guidance range of $1.06 to $1.18 a share. The Street consensus sits at $1.17.

Good trading,
JJ
@TDAJJKinahan

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