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China’s Misfire Dents Stock Shares, Though Housing Starts Limit Street Losses

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August 18, 2015

China’s fresh currency and stock plunge are yanking U.S. stocks lower in early action Tuesday, leaving Monday’s respectable U.S. housing-boosted stock gain in the rear view mirror. Stocks did trim early losses Tuesday after a largely upbeat housing starts report continued the theme of improving real estate and construction markets.

But overseas action continues to have an impact, too. China’s Shanghai Composite fell over 6% to log its biggest loss in three weeks,  as investors shrugged off signs of recovery in that country’s housing market and its central bank‘s latest move to help plug capital outflows. Europe’s stocks were soft, led by commodities-linked stocks as metals and oil continue to carve out fresh multiyear lows.

SPX-Above-2100

FIGURE 1: GAIN AT RISK?

The broad S&P 500 (SPX) managed a finish just above the closely watched 2100 line Monday but that gain looks threatened by downbeat sentiment early Tuesday. Data source: Standard & Poor’s. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Housing Starts Highest Since Pre-Recession. Construction on new U.S. homes rose in July at the fastest pace since October 2007, nudging up 0.2% to an annual rate of 1.21 million last month. Yet permits for new construction—a sign of future demand—fell 16.3% to an annual rate of 1.12 million. Still, permits are 7.5% higher compared to one year ago. Permits for single-family homes, which account for almost three-quarters of the housing market, slipped 1.9% to an annual rate of 679,000 last month. The report follows an upbeat reading from a home builders’ survey out Monday. See figure 2 for the full economic calendar.

HD: Lifted, Again. Home Depot (HD), meanwhile, lifted its guidance in its earnings report out this morning. HD said it now expects its 2015 per-share earnings to grow 13% to 14%, up from the 11% to 12% growth it had forecast in May. The company is looking for sales growth of 5.2% to 6%, compared to its May forecast for 4.2% to 4.8% growth.

WMT: Cuts Outlook. Wal-Mart Stores (WMT) warned for the current quarter and cut its earnings guidance for the year, citing wage increases, the drag of a strong dollar, and investments in its struggling units. For the year, the company is now expecting earnings of $4.40 to $4.70 a share, down from its previous forecast for $4.70 to $5.05 a share. WMT joins Macy’s (M) and Kohl’s (KSS) in reporting worse-than-expected revenue this quarter, which continues to raise some questions about the strength of the U.S. consumer. Spending elsewhere? Maybe.

Good trading,
JJ
@TDAJJKinahan

FIGURE 2: ECONOMIC AGENDA.

This week’s U.S. economic report calendar. Source: Briefing.com

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JJ Kinahan

JJ began his career in 1985 as a Chicago Board Options Exchange...

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