After being up for most of the day, blue-chip stocks have descended into negative territory after housing data and testimony from the Federal Reserve chairman disappointed analysts and investors. With roughly an hour remaining in the trading session, the Dow Jones Industrial Average (DJINDICES:^DJI) is off by 39 points, or 0.25%.
Data released this morning showed that the nascent housing recovery is still on track, though it's not growing at the rate anticipated by economists. According to the National Association of Realtors, existing-home sales rose in April by 0.6% to the highest level since November 2009. While this equated to a 9.7% increase over the same month last year, economists surveyed by MarketWatch had nevertheless anticipated the number to come in marginally higher.
"The robust housing market recovery is occurring in spite of tight access to credit and limited inventory," said NAR chief economist Lawrence Yun. "Without these frictions, existing-home sales easily would be well above the [current] pace."
The nation's largest luxury-home builder, Toll Brothers (NYSE:TOL), confirmed the generally positive trend in the housing market today with its fiscal second-quarter results -- click here to read the press release. While a comparison of the company's year-over-year earnings figures was rendered meaningless by a $13.2 million pre-tax gain related to the settlement of derivative litigation, its unit sales showed tangible improvement. Relative to the same three-month period last year, Toll's net signed contracts rose by 36%.
"Demand accelerated significantly this quarter," noted CEO Douglas Yearley. "Increased pricing power and stronger sales drove our agreements up 57% in dollars and 36% in units -- the highest for any quarter in seven years."
On a slightly less upbeat note -- at least so far as the stock market is concerned -- there's now reason to believe that the Federal Reserve may soon begin to reduce its massive monthly purchases in the bond market. Testifying before a congressional panel earlier today, Fed Chairman Ben Bernanke said that the central bank could begin winding down the $85 billion-a-month program at one of its "next few meetings" if it concludes that there's been "real and sustainable progress in the labor-market outlook." Click here for the official transcript of his testimony.
This testimony was seconded by the release of the minutes from the Fed's most recent monetary-policy meeting. The notes showed that a "number" of officials are ready to start tapering purchases as soon as the next meeting this June, while a "couple" said that the central bank might have to step up the program if conditions don't improve. A recap in The Wall Street Journal captured the Fed's predicament: "Fed officials are hesitant about their next step on monetary policy in part because they're especially uncertain about how the economy unfolds in the next few months, in the face of tighter fiscal policies."
It was this news that sent stocks lower this afternoon after they were generally up for much of the day. Shares of Wal-Mart (NYSE:WMT) are indicative of the trend, down 0.6%% at the time of writing. The retail giant disappointed analysts last week with worse-than-expected quarterly earnings for the three months ended April 30. Its same-store sales were particularly disconcerting, having dropped on a year-over-year basis for the first time since the summer of 2011. Investors today were likely reminded of Wal-Mart's tribulations after its primary competitor, Target, reported a similar experience.
One of the few Dow stocks headed higher, alternatively, is Home Depot (NYSE:HD). The impetus for the move appears to be twofold. First, it still appears to be riding high on yesterday's earnings release, which beat expectations on both the top and bottom lines. And second, while the housing data released this morning missed the consensus estimate, it nevertheless showed a continued improvement in the sector that matters most to Home Depot and its investors.