If you're a pessimist the past couple of years haven't given you much to cheer about; but today's move lower in the S&P 500 (SNPINDEX:^GSPC) just might be a start.
Overall, today's economic data releases were generally positive and wouldn't have been expected to cause a major downswing in the market. However, after seeing just a handful of down days over the past five weeks a profit-taking sell-off was likely overdue.
The Commerce Department's release of new home sales for May surged 18.6% to a seasonally adjusted annual rate of 504,000, its fastest pace in six years. The surge isn't a huge surprise given how the polar vortex constrained sales in February and March, however the magnitude of the gains (18.6%) came as a surprise to almost everyone. What we might be witnessing is a resurgence of homebuyers with interest rates bumping up against their lowest levels in a year. The big question now is whether or not this is sustainable beyond just a single month.
By a similar token, U.S. consumer confidence rose to a six-year high according to the Conference Board to a reading of 85.2 in June from 82.2 in the prior month. Most economists had been forecasting a reading between 83.5 and 84. Higher consumer confidence readings mean citizens feel more confident about their short- and long-term economic outlook, which, in turn, could mean they're more apt to spend. Since roughly 70% of U.S. GDP is dependent on consumer spending this bodes well for continued economic growth.
Lastly, the Case-Shiller 20-city Index for April delivered mixed results with prices for homes up 10.8%. On one hand a 10.8% year-over-year increase in prices is nothing to sneeze at and should encourage existing homeowners and home-buying investors. On the other hand, this was down from a 12.4% price increase in March and could be a direct reflection of more homes for sale hitting the market. Homebuilders have to be careful not to flood the market with new properties otherwise their pricing power could go down the drain.
By days end profit-taking was the name of the game with the S&P 500 dipping 12.63 points (-0.64%) to close at 1,949.98, its worst loss is almost two weeks. Despite the dip, three companies really stood out to the upside.
The biggest surprise, by far, came from Vertex Pharmaceuticals (NASDAQ:VRTX), which advanced 40.4% after announcing late-stage results from two studies (TRAFFIC and TRANSPORT) involving its investigational combo of VX-809 and FDA-approved Kalydeco to treat cystic fibrosis patients with two copies of the F508del mutation.
All four treatment arms in the 24-week study demonstrated a statistically significant improvement in forced expiratory volume in one second (FEV1), resulting in a mean absolute improvement in percent predicted FEV1 of between 2.6 and 4 percentage points from baseline. Vertex plans to use this positive data, which also met a number of statistically significant secondary endpoints, to apply for approval in the U.S. and Europe in the fourth quarter. While I see this combo's shot at approval being good in both the U.S. and EU, I would caution that at a valuation of $22 billion there isn't much value left to be squeezed out of this stock, and would suggest you to wait for a significant pullback before considering Vertex as investment material.
Print management and promotional solutions provider InnerWorkings (NASDAQ:INWK) jumped 10.8% after receiving an early morning upgrade from research firm Craig-Hallum to buy from hold. Specifically, Craig-Hallum anticipates that InnerWorkings' core business and European demand should improve throughout the remainder of the year. The firm also raised its price target 11% to $10 from $9.
As the global economy has rebounded so has the corporate promotional environment, so today's upgrade does make sense. However, as is often the case with analyst ratings, they tend to be more rearward looking that long-term focused. With advertising and promotional efforts moving toward a digital platform InnerWorkings could find growth difficult to come by later this decade. At 20 times next year's earnings estimates I'd opine that the company is fairly valued here.
Finally, China-based online media company SINA (NASDAQ:SINA) rallied 6.6% after research firm Zacks reported that Weibo (NASDAQ:WB), which SINA still owns a majority stake in, had 22 million visitors on the first day of the World Cup, as well as 83 million published posts within the first two hours. This interest bodes well for Weibo which is trying to make a name for itself as the next great social media platform. Higher levels of traffic leads to pricing power when it comes to orchestrating collaborations and garnering more lucrative advertising deals.
For SINA, if Weibo benefits it will benefit. SINA ended its latest quarter with a whopping $1 billion in net cash and could essentially liquidate its Weibo stake for a little over $2 billion. In other words, SINA is being valued almost entirely for its cash on hand and its Weibo stake with little regard for its other existing operations. I believe this could represent a good buying opportunity for investors, but would suggest you dig a bit deeper first as this isn't a stock for the faint of heart.
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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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