It appeared as if mixed economic data was going to do the trick and send the broad-based S&P 500 (^GSPC +1.20%) to a huge gain; but, once again, the curse of the housing data struck, and sent the market only modestly higher after big early morning gains.
Investors certainly needed to put on their reverse psychology cap to understand the markets' intentions today, with the second estimate of GDP for the fourth quarter coming in at 2.4%, which is significantly lower than the initial estimate of 3.2%, and much lower than the final 4.1% growth reported in the sequential third quarter. Normally, weaker growth wouldn't push the S&P 500 up in the first place, but the other side of the coin is that weaker growth likely means a much slower taper of QE3 from the Federal Reserve, and thus, more free money being pumped into the economy via long-term Treasury and mortgage-backed security purchases.
On the other hand, some data was straightforward -- and good! The final reading of the Michigan Consumer Sentiment Index rose to 81.6 from a prior reading of 81.2, signaling that consumers are feeling more positive about their combined short-term and long-term financial outlook. Consumer sentiment is a key indicator to watch, because consumer spending is responsible for a big chunk of U.S. GDP.
Similarly, the Chicago Purchasing Managers Index came in with a reading of 59.8 in February, up slightly from a prior reading of 59.6. In addition to strong consumer spending, we need manufacturing sector expansion if we hope to drive the unemployment rate lower.
But, we also had housing data reported -- which has been the Achilles' heel of the S&P 500. It really doesn't matter whether the data is good or bad – if housing data is reported, the new trend is that the S&P struggles to hold its gains. Today, pending home sales for January were announced to have risen 0.1%, which was a nice reversal from the decline of 5.8% in the prior month. Still, with the prospect of lending rates rising over the long term, the housing sector is sitting in a precarious and worrisome position.
By day's end, the S&P 500 ended higher by 5.16 points (0.28%), to close at 1,859.45, a new record close, but off of the nearly 1,868 it touched intraday earlier in the trading session.
Leading all companies to the upside today was media business provider Central European Media (CETV +0.00%), which operates (unsurprisingly) in Central and Eastern Europe. Shares of CME, as it's commonly known, soared 74.9% after reaching a credit agreement with its largest shareholder, Time Warner (TWX +0.00%). The up to $545 million financing deal will allow CME to redeem its senior notes due in 2016 via a rights offering that will push the remaining balance of its loan out an extra year, and allow CME to become cash-flow positive by 2015. Central and Eastern Europe are considered emerging market economies that can grow at a significantly faster rate than the industrialized world, giving CME a chance to focus on its growth rather than on its precarious debt situation, while also providing a potentially profitable warrant scenario for Time Warner.
Shares of China Ming Yang Wind Power (NYSE: MY) soared 25% on the day as a continuation move from a report earlier this week from China Daily that China's government wants to increase wind power generating capacity this year. Furthermore, the report notes that offshore facilities will get top priority. As a producer of wind turbines, China Ming Yang could stand to benefit from an increase in orders, which could go a long way toward minimizing its quarterly losses. Total orders through China Ming Yang's first nine months of fiscal 2013 totaled 1 GW, and could easily eclipse that next year. One question remains: Can it reduce its expenses enough to at least get back to breakeven on an EPS basis?
Finally, deepwater offshore drilling equipment and servicing company Dril-Quip (DRQ +0.00%) rallied 12.2% after reporting better-than-expected fourth-quarter results. For the quarter, Dril-Quip delivered a 23% increase in total revenue, to $232.5 million, helped almost entirely by a $40.5 million increase in product revenue, as its adjusted EPS rose to $1.21 per share from $0.78 in the year-ago period. Dril-Quip also announced that its backlog had increased to approximately $1.2 billion, from $881 million, at the end of the prior fiscal year. By comparison, Wall Street had anticipated Dril-Quip would report an EPS profit of just $1.14. Looking ahead, the company forecast full-year EPS of $5-$5.20, which is below the $5.40 that the Street had been expecting, but was perhaps much better than many had anticipated with the weakness we've witnessed throughout the deepwater drilling sector. Despite today's positive news, at roughly 20 times this year's profit, and the deepwater drilling outlook still somewhat uncertain, I'd suggest keeping to the sidelines.
