Is the Housing Market Improving?
Another rally led by the banks. Citi (NYSE:C) was up 4% on better than
average volume after an analysts raised his earnings estimates for the
bank for 2012 and 2013.
Why?
Because last week, Citi said it would keep its retail credit card partner
business. This business allows other companies to issue cards with their
logo on it. And it’s very profitable, adding $2.2 billion in pre-tax
profits so far this year.
Of course, there’s always a counter-point. This business is also risky,
as it exposes Citi to higher default rates that accompany retail credit
cards.
Still, the move for financial stocks was widespread, and I have to suspect that the rally is related to the government’s latest mortgage relief initiative that will allow homeowner’s to refinance underwater loans. There’s no principal reduction, but even supporting refi’s at the current rate can put several hundred extra dollars in people’s pockets.
It’s easy to see how extra cash will help credit card companies. And overall, this is a very good move.
I came across an interesting note from Citi yesterday. Apparently, the number of homes listed for sale in September was the lowest it’s been since 2005. And over the last 5 years, only 4 months have seen fewer homes for sale than September.
I’m not ready to say the housing market has turned. After all, we know there is still substantial shadow housing inventory. Still, this is a good sign, and another bullish catalyst for stocks.
Are we seeing the death high-flyer Netflix (Nasdaq:NFLX)? Maybe not as a company, but as an investment worthy stock, it sure looks that way. Netflix lost 800,000 customers in a quarter. And while the Netflix name carries some goodwill, at the end of the day, it’s just a content delivery system. There's no barrier to entry in this space.
I would not be eager to bottom fish this one.
Oil prices ramped hard yesterday and are up again today. That's a stark counterpoint for the weak global growth story. Oil is an ideal indicator for growth expectations, and now that it's back above $90 a barrel, it's clear that investors are looking for better growth.
As I wrote yesterday, estimates for U.S. GDP growth are increasing. We may get a reading of 2.5% for the third quarter when the number comes out Thursday. We have a very good chance of a strong end of year rally, once the European situation is sorted out.
For a rally, look for oil and basic materials. Copper has been trading higher and Freeport McMoran (NYSE:FCX) has been looking good. There could be solid gains for this stock to come after its fall from the $60 level.
Any rally will also take tech stocks higher, and there are some bargains in the space right now.
Tomorrow is the big day for Europe. The latest summit is due to end tomorrow, and the market is expecting come concrete steps to end the Greek debt problem and recapitalize Euro-banks.
And yes, this situation is ripe for disappointment. Stocks are off today in anticipation, and I don't expect any upside until Europe lays out its latest plans. It could be ugly if there is no important news.
Even though I think a rally is coming, it is
prudent to wait for Europe before getting positioned. Whatever measures
come out of Europe, I expect there to be selling that could be steep. But
that sell-off should provide attractive entry points.
Write me anytime: dailyprofit@wyattresearch.com
Until tomorrow,
Ian Wyatt
Editor
Daily Profit
