It's been almost three weeks, but go ahead and chalk up yet another intraday record for the broad-based S&P 500 (SNPINDEX:^GSPC) which marched ever closer to the psychological 2,000 barrier after mixed economic data and a flurry of strong earnings results.
On the economic front, housing data gave the market its greatest push higher, with existing home sales for June coming it at a seasonally adjusted annual rate of 5.04 million, up from 4.91 million in May. Estimates had been calling for a figure closer to a seasonally adjusted annual rate of 5 million. For investors, this signals that homebuyers' appetite for home purchases may be growing again, which is good news considering that lending rates are again nearing their lowest point in a year.
On the flipside, today's Consumer Price Index release for June can be taken two ways. First, its 0.3% month-over-month increase dropped from the 0.4% increase in May and would signal that the rate of price increases for a basket of similar goods is slowing – and that's good news for the consumer. Conversely, that's two straight months of some pretty substantial price increases to consumers meaning inflation could be creeping back into the picture. Some inflation is a good thing for businesses as it demonstrates pricing power and steady or growing demand for their products and services. However, too much inflation and we could start to see consumer demand deteriorate which would be bad news.
The real growth driver, though, was a number of key earnings reports. For the most part, companies are handily trumping Wall Street's profit expectations and showing investors that Q1 was a weather-induced fluke.
By day's end, the S&P 500 had jumped by 9.90 points (0.50%) to close at 1,983.53, just a few points below its all-time closing high.
Leading all companies to the upside today was embattled nutrition, weight-management, and personal-care products company Herbalife (NYSE:HLF), which rocketed to the upside by 25.5% after Pershing Square's Bill Ackman presented his case against the company.
According to Ackman's presentation before the market open, he claims that the Federal Trade Commission is investigating Herbalife in anticipation of a possible formal probe. In addition, Ackman's research has concluded that Herbalife has fictitious customers and has inflated its potential business opportunities. In response, Herbalife defended itself by releasing documents this morning that supported its network business model as legitimate.
Today's action, which has long pitted Bill Ackman on the short side against activist investor Carl Icahn on the long side, is merely the culmination of Ackman's promise to the world with his presentation and underdelivering on that promise. Although there may be no inherent problems with Herbalife, investors' best course of action is probably to keep their distance, given just how cloudy its near-term outlook is. Rumors and speculation, both good and bad, could affect its bottom line, and frankly I'd prefer to stick to the sidelines just in case any of these accusations are proved accurate.
Investors also have to be wondering who spiked the burrito with habanero sauce after Chipotle Mexican Grill (NYSE:CMG) shares soared 11.8% following its second-quarter earnings results.
To say that Chipotle Mexican Grill topped expectations in the second quarter wouldn't be doing it justice. Total sales rose nearly 29% to $1.05 billion as comparable-store sales flew 17.3% and EPS jumped to $3.50, a 24% increase from the previous year. Comparatively, Wall Street was expecting only $990 million in sales, a 10.6% increase in same store comps, and just $3.09 in EPS. The impetus was consumers' willingness to accept the first price increases Chipotle has implemented in three years. Facing higher beef, dairy, and avocado pricing, Chipotle had little choice but to raise its prices in the face of weakening margins, and it appears to have paid off.
Despite Chipotle Mexican Grill's obvious outperformance and steady niche as a provider of natural and organic foods, I still can't wrap my hands around the company's forward P/E of 40. In other words, I would suggest investors consider locking in at least some of their gains here until Chipotle's bottom line somewhat catches up with its frothy valuation.
Lastly, FuelCell Energy (NASDAQ:FCEL), a fuel-cell system developer for power plants, also romped 11.8% higher after announcing that its affiliate FuelCell Energy Solutions had received a 4.9 million euro ($6.7 million) research award in Germany to support a research project in collaboration with joint-venture partner Fraunhofer IKTS. Specifically, the project is designed to enhance Direct FuelCell technology and extend the life of fuel cells in order to lower long-term costs for this energy source.
While this is certainly welcome news for existing shareholders in FuelCell Energy and it points to the growing need for alternative forms of fuel, as my Foolish alternative energy colleague Travis Hoium pointed out earlier it doesn't materially alter FuelCell Energy's outlook. For the time being the company is still seeing somewhat inconsistent orders and it could be a few more years before it makes the full transition to profitability. Until such time as that occurs, I would recommend sticking to the sidelines.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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