On the heels of a long weekend in which we gave thanks to our fallen heroes, a trifecta of positive economic data again lifted the broad-based S&P 500 to a fresh closing high.
Perhaps no piece of economic data stood out more than April's durable goods orders which rose 0.8% compared to a huge jump of 3.6% in March. You might be scratching your head and wondering "Wait, it dropped from the previous month! How is that good news?" The answer is that most economists were expecting a greater than 1% decline in durable goods orders. This strength, led by a surge in military spending, signals that big ticket items are still selling well and is an encouraging sign that the economy is still healthy.
Also, the Case-Shiller 20-city Index for March showed a year-over-year homes price increase of 12.4%, slightly ahead of estimates. Although this is also down from the year-over-year gain of 12.9% in February, it demonstrates that homebuilders are managing their inventory tightly enough so as to keep prices and demand on the rise. Consumers have proven extremely fickle when it comes to interest rates, so the homebuilding sector couldn't hope for any better news than this.
Lastly, the Conference Board's Consumer Confidence Index rose to a reading of 83 in May from a prior readout of 81.7. Higher consumer confidence indicates that consumers are feeling more positive about their short-term and long-term economic outlook; and since consumer spending equates to around 70% of GDP this figure rising is a key indicator for the markets.
By days end the S&P 500 danced its way to a double-digit point gain, tacking on 11.38 points (0.60%) to close at 1,911.91.
The true leader of the pack today among individual stocks was biopharmaceutical company Dyax (NASDAQ:DYAX) which gained 27.4% on the day after riding the coattails of a peer higher and receiving positive commentary from a Wall Street research firm. The big news, as we noted earlier in the day, was the positive phase 2a proof-of-concept results from BioCryst Pharmaceuticals' (NASDAQ:BCRX) hereditary angioedema drug hopeful BCX4161. The investigational drug met both its primary and secondary endpoints in the study that's designed to reduce the frequency of HAE attacks (HAE is a rare genetic disorder that causes swelling of the face and airways, along with abdominal cramping). As research firm Jefferies notes, Dyax's investigational HAE therapy DX-2930 works along the same pathway as BCX4161, which, in turn, means the odds of it succeeding have improved following Biocryst's results earlier today. Keep in mind, though, we're not expecting these early stage results until next year, so today's surge in Dyax may be a bit ahead of itself.
Not too far behind Dyax is meat producer Hillshire Brands (NYSE:HSH), known best for its Hillshire Farms, Jimmy Dean, and Ball Park brands, which surged 22.1% after Pilgrim's Pride (NASDAQ:PPC), one of the nation's largest poultry suppliers, offered to buy Hillshire Brands for $6.4 billion. Keep in mind the complexity of this as Hillshire Brands just announced an offer to acquire Pinnacle Foods for $4.2 billion just two weeks ago. The actual offer by Pilgrim equates to $45 per share, or roughly a 25% premium to Hillshire's average price point over the previous 10 days. If Hillshire agrees to the deal, Pilgrim would pay a $163 million early termination fee to Pinnacle Foods for breaking up its short-lived courtship. It's possible that a bidding war could begin for Hillshire, but with the company already valued at 22 times forward earnings I certainly wouldn't count on that. Despite the arbitrage opportunity here, I'd consider taking your gains and beginning the adventure of finding a new stock or stocks to park your money into over the long run.
Lastly, struggling teen retailer Aeropostale (NASDAQOTH:AROPQ) jumped 15% after announcing that it had secured $150 million in financing from Sycamore Partners which has been sorely needed as it looks to close down a number of its stores in order to bring its expenses under control.
Following this announcement Piper Jaffray upgraded Aeropostale to neutral from underweight, stating that most of its near-term liquidity risk has been put on the backburner for the time being. As for me, I'm cautiously optimistic that Aeropostale will get its act together, but not optimistic enough to actually put real money on this stock. My biggest problem with Aeropostale is that it lacks any brand loyalty. Based on price point alone teens and parents like Aeropostale. However, teens are incredibly picky when it comes to apparel and Aeropostale lacks the brand appeal that its peers possess. Until it can build around its brand, then Aeropostale is likely to remain a middling option at best in the teen retail sector.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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