Just when you thought he might have skipped town for good, Santa makes a grand entrance. Tuesday’s rollicking 337-point surge in the Dow provided welcome relief, restoring some of Wall Street’s missing holiday cheer. But can the newfound enthusiasm last?
To answer that one, we have to look a little more closely at the news that supposedly ignited the buying.
Overseas, the Spanish government conducted a successful auction of three-month bills at 1.74% — down steeply from 5.1% in November. That’s encouraging. It suggests investors are impressed, so far at least, with Spain’s new prime minister Mariano Rajoy, a conservative consensus-builder.
Europe’s road back will be long and difficult, but it’s possible at least one major country is about to take the first small step away from the precipice.
On the other hand, the domestic story that got the bulls fired up yesterday was almost certainly not as big a deal as advertised. The Commerce Department said builders broke ground on 685,000 new homes last month — up 9.3% from October.
This sounds like a great number, until you realize apartments accounted for the great majority of the increase in housing starts. Single-family starts rose a much more modest 2.3% and building permits for single-family homes (a forward-looking indicator for starts) edged up only 1.6%.
Thus, the housing market as most of us know it still is mired in a deep depression. I expect the homebuilder stocks to give back all of yesterday’s spike — and more — in the weeks ahead. Speculators, hold your shorts in Lennar (NYSE:LEN) and Pulte Group (NYSE:PHM).
As far as the broader equity market is concerned, there’s probably just enough seasonal good feeling in the air to keep the headline indexes trending upward through Christmas — perhaps all the way to New Year’s. I would caution you, though, the mood could easily change in January.
Company News
After the bell Tuesday, tech bellwether Oracle (NASDAQ:ORCL) reported slower growth in sales (2%) and profits (5.8%) for the November quarter than the analyst consensus was projecting. Chalk up one more data point suggesting that yes, ma’am, even America’s software industry — the envy of the globe — is feeling the impact of slowing business conditions abroad.
Fortunately, ORCL already was trading at a very undemanding multiple (11.8 times forward earnings) when this news hit — and, if yesterday’s after-hours drop is any indication, you should be able to buy the stock cheaper yet today.
