Although homebuilder confidence is rising in May, the number of housing starts in April fell to a five-month low. While most economists were expecting a decline, they only estimated it would fall to 970,000 units, but it actually fell to 853,000, or 16.5%. This report is disappointing and an indication that the housing market is not as healthy as many of us may have thought. Regardless, housing starts are 13.1% higher than they were this time last year.
So while the housing data is still good, it is also slightly negative -- unlike the jobless claims report, which is just negative. Initial jobless claims grew by 32,000 last week to hit 360,000. Not only is this a higher-than-expected increase, but claims are now at a six-week high. Estimates pinned the claims increasing by 7,000 to hit 330,000, which would not have been bad since most economists consider 320,000 claims normal and part of the regular job market churn.
So after receiving these two poor data points, as of 12:45 p.m. EDT the Dow Jones Industrial Average (DJINDICES:^DJI) is higher by only 8 points, or 0.05%. The Nasdaq has also increased by 8 points, or 0.24%, while the S&P 500 (SNPINDEX:^GSPC) is lower by less than a point, or 0.02%.
But even though the markets in general are flat, a number of the Dow's 30 components are deep into negative territory.
The poor housing report is likely the cause for shares of Home Depot (NYSE:HD) falling lower by 1.84% this afternoon. As I mentioned above, although the report in general is negative, housing starts are still up for the year. But even though the housing market is still on a strong foundation, shares of Home Depot are currently selling for 25.5 times past earnings, which really is putting a lot of faith in a full-blown housing recovery.
Shares of Wal-Mart (NYSE:WMT) are leading all Dow losers today, as the stock has fallen 2.15%. The drop comes after the company announced first-quarter earnings that missed on both the top and bottom lines. Estimated revenue was $115.8 billion, but Wal-Mart only posted $114 billion. Earnings per share was expected to hit $1.15, but came in at $1.14, although that was still a 5% increase from the $1.09 the company reported for the first quarter last year. Investors should not make any rash decisions today based on this one report; always consider the results for a number of earnings reports before choosing to buy or sell.
Shares of Merck (NYSE:MRK) are also trading lower, but by only 0.75%. Yesterday the company announced a $6.5 billion debt offering, which Merck will use the proceeds of to repurchase common stock. While I do believe companies should buy back shares when they fall to certain prices, I don't believe any company should ever go into debt for that reason. Too many times we have seen management teams spending millions of dollars on stock-repurchase programs just for the stock price to fall in the coming months or year. Management teams are good at managing companies, not making investment decisions.