Housing Sales Key To Next Week

By Dirk van Dijk

Earnings Preview 8/20/10

Earnings season is just with regards to over, with just a small amount of stragglers -- largely those with fiscal periods ending in July. Many of those are merchants who sells goods at retail and non-U.S. firms. There are going to be 111 firms reporting, including just 6 S&P 500 firms. Still, there are a small amount of firms of standard interest that are going to be reporting, including Big Lots (BIG - Analyst Report), Bank of Montreal (BMO - Snapshot Report), BHP Billiton (BHP - Analyst Report), Medtronic (MDT - Analyst Report) and Novell (NOVL - Snapshot Report).

It will similarly be a comparatively light week for the economical information. That more than likely makes next week a good time to take your summer vacation, as the week after that are going to be jammed with key information. Still, there are going to be a small amount of key numbers of interest, including both new and utilized home sales, and lasting goods. On Friday, we get the second consider the second quarter GDP data.

Monday

* Nothing of interest; look at making it a 3-day weekend.

Tuesday

* Existing home sales are required to have dropped to an annual rate of 5.14 million in July from 5.37 million in June. Given that utilized home sales are recorded at closing, and the deadline for closing was June 30 to get the tax credit, I suppose the drop are going to be much more spectacular, and the actual rate may start out with a four, not a five. However, utilized home sales are in truth not that necessary to overall economical action. What matters is existent home prices, which is a key in how some individuals are underwater on their mortgages, and thence at much high chance of foreclosure. The level of inventories relative to the sales rate, or the months of supply, are going to be the key number to watch here. In June it was 8.9 months, up from 8.3 months in May. It could well reach double-digits, and that would put substantial downward pressure on housing values.

Wednesday

* While existent home sales aren’t that substantial to overall economical action, new home sales are a VITAL economical indicator. If new homes aren’t merchandising, then builders wouldn’t build more, since they don’t want to sit on very costly inventory. Each new home built generates an enormous quantity of economical action, for both labor and materials. Since new home sales are recorded when the contract is signed, not at closing, they have prior to the specified or implied time suffered from the post-tax-credit hangover. In June, they jumped by 23.6%, but that was off of record low levels in May, and were still down 16.7% from already downhearted levels of a year ago. In July, they’re required to rise to an annual rate of 338,000 from June’s 330,000. By any historical frequent, that is still an extraordinarily low rate.
* New Orders for Durable Goods are required to have jumped 3.4% in July after falling 1.2% in June. However, all of that increase is required to have come from the exceedingly volatile transportation instrumentation segment. Boeing (BA - Analyst Report) was very successful in collecting new orders at the major air shows in July. Since they’re such large-ticket items, a small amount of orders for 787’s and 777’s may swamp the trends in the rest of the economy. Excluding transportation instrumentation, orders are required to have fallen 0.7% on top of a 0.9% decline in June.

Thursday

* Weekly basic claims for jobless insurance come out. They rose 12,000 in the last week, to 500,000. After a prominent downtrend from mid April through the end of 2009, basic claims were locked in a tight “trading range." Last week they broke out of that merchandising range to the upside, which was a truly bad sign. Look for them to fall modestly next week. We more than likely need for on a weekly basis claims (and the four-week moving intermediate of them) to get down to closer to 400,000 to signal that the economy is adding sufficient jobs to make a dent in the jobless rate. A rate of over 500,000 signals that the jobless rate is more than likely headed back up.
* Continuing claims have similarly in a steep downtrend of late. Last week they fell by 13,000 to 4.478 million. That is still down 1.649 million from a year ago. Most of the longer-term decline is because of individuals plainly exhausting their regular state gains, which run out after 26 weeks. Federally compensated extended claims rose by 309,000 to 5.591 million. In May, extended gains ran out. Almost two million Americans were cut off from gains as the Senate filibuster dragged on. The filibuster was in the long run win a victory over a small amount of weeks ago, and individuals are streaming back on to the rolls, with a total increase of 1.931 million over the last three weeks alone. That rebound had better be largely over now, so seek for the extended claims numbers to stabilize. Looking at just the regular continuing claims numbers is a severe fault. They only include a small over half of the unemployed now given the unprecedentedly high duration of jobless figures. A better measure is the total number of individuals becoming jobless gains, presently at 10.069 million, which is up 296,000 from last week. The total number of individuals becoming gains is now 254,000 million above year ago levels. Make certain to consider both sets of numbers! Many of the press reports wouldn’t, but we will here at Zacks.

Friday

* We get the second consider growth in GDP in the second quarter. In the introductory peek, growth was approximated at 2.4%, which marked a prominent slowdown from the 3.7% rate in the introductory quarter. Subsequent information has come in proposing that the 2.4% rate was FAR too optimistic, and the consensus expectation is that it are going to be revised all the way down to 1.4% growth. That might just be overdoing it a bit. There is no question with regards to the direction of the revision -- exceptionally in light of the sell deficit numbers -- just in the magnitude of the downward revision. I suspect the number are going to be closer to 1.6%.
* The University of Michigan Consumer Sentiment is required to edge up to 70.0 from 69.6%. That is still a truly low reading; in a healthful economy it have a tendancy to be over 90. I’m not a prominent fan of the Consumer Sentiment and Consumer Confidence numbers, not because the buyer is not necessary, but because what individuals say in those surveys frequently doesn’t in truth mirror their actual buying goods conduct. Still, I would quite see a high number than a low number.

Potential Positive Surprises
Historically, the most skillful indicators of firms likely to report positive surprises are a recent history of positive surprises and rising estimates going into the report. The Zacks Rank is similarly a good indicator of prospective surprises. While commonly firms that report better-than-expected net income rise in reaction, that has not been the case so far this quarter.

Bank of Montreal (BMO) is required to report EPS of $1.18 against $0.80 a year ago. Last time out, BMO beat the consensus by 10.3%, and over the last four weeks the mean estimate has risen by 0.30%. BMO is a Zacks #2 Ranked stock.

Brown Shoe (BWS) is required to report EPS of $0.10 against a loss of $0.14 a year ago. Last time out, BWS beat the consensus by 100.0%, and over the last four weeks the mean estimate has gone up by 2.56%. BWS is a Zacks #2 Ranked stock.

DSW Inc. (DSW) is required to report EPS of $0.44 against $0.17 a year ago. Last time out, DSW beat the consensus by 28.9%, and over the last four weeks the mean estimate has gone up by 17.11%. DSW is a Zacks #2 Ranked stock.

Potential Negative Surprises
American Eagle (AEO) is required to report EPS of $0.12 against $0.08 a year ago. Last time out, AEO reported in line with expected values, and over the last four weeks the mean estimate has fallen by 1.03%. AEO is a Zacks #5 Ranked stock.

SWS Group (SWS) is required to report EPS of $0.10 against $0.25 a year ago. Last time out, SWS disappointed by 275.0%, and over the last four weeks the mean estimate has dropped by 12.5%. SWS is a Zacks #5 Ranked stock.

Toll Brothers (TOL) is required to report a loss of $0.15 against a loss of $0.04 a year ago. Last time out, TOL reported in line with expected values, and over the last four weeks the mean estimate has dropped by 11.8%. TOL is a Zacks #5 Ranked stock.

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About The Author
Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.com. With more than 25 years investment experience he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market-beating Zacks Strategic Investor service. For more information, visit www.zacks.com.