Blue-chip stocks are slightly lower today after the National Association of Realtors reported that pending-home sales had fallen in December, leading analysts to question the strength of the still-nascent housing recovery. With approximately an hour left in the trading session, the Dow Jones Industrial Average (DJINDICES:^DJI) is up by 12 points, or 0.08%.
Pending home sales fall
For the month of December, the National Association of Realtors estimates that pending home sales -- in which a purchase contract has been signed but the closing has yet to occur -- fell by 4.3% from November. On a year-over-year basis, however, they increased by 6.9% for the 20th consecutive month.
As we saw last week when the NAR released its estimate for existing-home sales in December, the primary reason for the fall appears tied to supply as opposed to demand. According to NAR's chief economist, Lawrence Yun: "The supply limitation appears to be the main factor holding back contract signings in the past month. Still, contract activity has risen for 20 straight months on a year-over-year basis."
The news that supply is the culprit is a welcome relief to homebuilders and other companies that have bet heavily on a housing recovery. As the CEO of homebuilder PulteGroup (NYSE:PHM) said at the end of last October: "In past cycles, the U.S. housing industry proved to be a powerful engine that could help drive the economy forward and accelerate the pace of a recovery. A similar scenario could again be unfolding, as the industry is responding to increased sales by hiring additional workers and purchasing more building materials."
Despite the nuance, shares of homebuilders are down considerably today, with industry giant PulteGroup leading the way down. Shares in the company are lower by 3.8% in intraday trading.
Stocks are mixed going into close
Beyond homebuilders, stocks are pretty evenly mixed going into the closing bell, with roughly half of the Dow's components trading higher and the rest in the red.
Leading the gainers is Caterpillar (NYSE:CAT), up 1.9%. Earlier today, the company reported its results for the final quarter of 2012. For the three-month time period, the equipment maker earned $697 million, or $1.04 per share. While this was below the EPS consensus estimate of $1.69, the company handily exceeded expectations when excluding one-time charges of $0.87 per share.
Following Caterpillar's lead are Procter & Gamble (NYSE:PG) and McDonald's (NYSE:MCD), both up by about 0.8%. P&G impressed analysts at the end of last week with better-than-expected earnings for the final three months of last year. In addition, as I discussed last week, the proprietor of brands such as Pampers diapers and Tide laundry detergent raised its earnings outlook for the remainder of 2013. It now expects to earn between $3.97 and $4.07 per share compared to its previous forecast of $3.80 to $4 per share.
Fast-food king McDonald's also gave its investors a reason to rejoice. The company's EPS of $1.38 for the three months ended Dec. 31 exceeded analyst estimates of $1.33. Further, same-store sales at the chain increased a solid 3.3% for the year. For context, in October, McDonald's announced its first month of negative comps since April of 2003.
Finally, shares of Barnes & Noble are down nearly 1.5% after the company announced that it will close as many as a third of its retail stores over the next 10 years. According to Mitch Klipper, the bookseller's head of retail operations, the chain will have between 450 and 500 stores by 2023. It currently operates 689 big-box locations, along with 674 college bookstores.
In a noble effort to make lemons out of lemonade, Klipper went on to discuss the future of the company's brick-and-mortar operations:
It's a good business model. You have to adjust your overhead and get smart with smart systems. Is it what it used to be when you were opening 80 stores a year and dropping stores everywhere? Probably not. It's different. But every business evolves.
While I hope he's right, I'm not as optimistic.