Stocks began the day lower but ended with a slight gain. The Dow closed up 13 points to 17,515. Trading volume was mild. All in all it was a calm yet mixed session.
Los Angeles CA based KB Homes reported “mansion quality” Q1 earnings yesterday and the numbers highlight a US housing market that continues to show signs of health. KB’s housing revenue was up 28%, net income doubled, home deliveries were up 23% and the average selling price was up 5%. Margins increased 120 bips to 20.7% and the company’s backlog was higher by 22% as demand for housing remains solid. These numbers all beat estimates and going forward KB said it expects the trends to continue. Getting land and workers is an issue but the company said demand is solid. The analysts however have been cool to housing stocks because they feel that the risk of higher interest rates could cool the market like a rainy day in Seattle. Keeping a guru happy is a chore although KB gave it a nice try.
WTI crude oil closed down a half a percentage point to $39.40 a barrel. US stockpiles continue to grow and last week for the first time in a dogs age the rig count actually increased by one! Gold continued to face downside pressure from a strong US dollar and fell $6.60 an ounce to $1,217.
Allianz chief economist and head guru Mohamed El Erian commented on CNBC that if the US economy were viewed in isolation then the Fed would have raised rates by now but in consideration of a strong dollar and slowing global economy via stress in China, Europe and parts south, the Fed is holding off on rate hikes for now. Big Mo also thinks that US stocks are range bound with no current signs of a breakout to the upside but that the downside could be 10% on a bad day. Overall I think he is right in that the US is becoming the “go to” investment choice for many investors as they bolt from Europe and shy away from China.