Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
Today marked the second straight day of abysmal housing data, expect this time, the broad-based S&P 500 (^GSPC 2.59%) could not escape its clutches.
Pushing generally positive earnings announcements and further merger and acquisition activity to the side, investors chose to focus on the January release of housing start data, as well as the weekly release of the Mortgage Brokers Association's Mortgage Index.
Housing starts for January were awful -- there's no way of sugarcoating it. Housing starts for January came in at an annualized rate of 888,000, a 16% plummet from January. This marks the biggest month-on-month decline in three years, and handily missed the consensus estimate of 950,000 by economists. This figure builds on yesterday's weak homebuilder sentiment, and points to growing caution that the Fed's QE3 tapering may lead to a rise in lending rates, and a halt of growth in the homebuilding sector.
In similar fashion, the MBA Mortgage Index, which measures loan originations (whether it be refinancing or new mortgage loans), fell 4.1% from last week. The index also fell 2% in the prior week. What we're seeing here is a very spoiled U.S. consumer who's become accustomed to falling rates. Even though rates are still historically low, these consumers are balking at lending rates that are roughly 100 basis points off last year's lows, which could represent bad news for the sector as a whole.
If there was a bright side to today's data, it was the 0.2% rise in the Purchasers Price Index for January. Rapid cost inflation for businesses is never a good thing, but a modest increase of 0.2%, as we're seeing here, demonstrates healthy expansion, as long as businesses can pass those price hikes successfully onto the consumer.
By day's end, the S&P 500 had finished decisively lower by 12.01 points (-0.65%), to close at 1,828.75, just the second time in the past seven sessions that it's ended lower.
Sparkling like a diamond in the rough today amid the red ink was fine jewelry chain Zale (NYSE: ZLC), which skyrocketed 40.3% after agreeing to be purchased for $690 million, or $21 per share, in cash by rival Signet Jewelers (SIG 2.88%), which operators Kay Jewelers. The deal will combine the nation's two largest mid-tier jewelry stores, reduce Signet's reliance on its oversea's chains by giving it a stronger presence in the U.S., contribute to about $100 million in cost synergies, and provide better buying leverage when dealing with diamond vendors. The move does make some degree of sense given that online competition is making life difficult for bricks-and-mortar retail chains, but I personally believe that Zale shareholders are getting one heck of a deal here, given how precarious its long-term debt situation remains. I remain skeptical as to whether or not Signet will benefit from this purchase anytime soon.
Also vaulting significantly higher on the day was small-cap biopharmaceutical company Chelsea Therapeutics (NASDAQ: CHTP), which advanced 24.4% after receiving approval for Northera from the Food and Drug Administration for the treatment of low blood pressure and dizziness in Parkinson's disease patients. The FDA panel's overwhelming recommendation for approval, and today's FDA approval, are still a bit of a shock because the drug seems to be quite effective over the short term (a few weeks), but it hasn't demonstrated the type of long-term effectiveness that I would have expected to see with an FDA approval. Peak sales estimates of the drug are approximately $400 million, so there's certainly room for Chelsea to run higher. The question will be whether or not it can effectively launch its new product.
Finally, land drilling oil and gas contractor Nabors Industries (NBR 10.69%) tracked higher by 13.3% after reporting strong fourth-quarter earnings results after the bell last night. For the quarter, with the assistance of tax benefits and the full recovery of receivables from a customers' bankruptcy settlement, Nabors earned an adjusted $0.42 in EPS on $1.61 billion in revenue. By comparison, Wall Street expected only $0.20 in EPS on $1.55 billion in revenue. Even backing out those one-time gains Nabors topped the Street by $0.01 per share. What really has investors excited was management's commentary that they believe this represent the low point for Nabors during an extended period of contraction. On the heels of this news, Nabors also received an upgrade to 'outperform' from 'underperform' at research firm CLSA.