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Markets Keep Rally Going (For Now); Home Sales Lower; COST, GPS, ULTA Report

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Markets rallied again today, building up investors’ hopes that we may finally have a breakout week to the upside for the first time in nearly two months. The Dow gained +517 points, +1.61%, the S&P 500 was +1.99%, the Nasdaq won the day, +2.68% or +306 points and the small-cap Russell 2000 +2.51% on the day.

Pending Home Sales for April, released this morning by the National Association of Realtors, came in almost twice as low as expected: -3.9% on the headline, from -2.0% estimated, and well off the previous month’s downwardly revised -1.6%. This marks six straight months of Pending Home Sales declines, the slowest pace in almost a decade.

This metric is a forward indicator on the housing market, as is thus far the most sluggish we’ve seen in a series of softer figures elsewhere in the industry. Rising mortgage rates have added an average of 25% higher costs for housing year over year, with continuing higher prices adding another 15% on average. Potential home buyers, when not being priced out of the market completely, are starting to turn to 5-year ARMs and expanding the regions of their home searches.

The only region to witness month-over-month gains was the Midwest, +6.6%, though still -2.8% year over year. The West dropped -4.3% from March, the South -4.7%, and the Northeast is down a whopping -16.2% month over month. These figures, as we’ve discussed in this column recently, may have a positive effect on overall inflation numbers if price points start coming down, over time.

Q1 earnings reports continue filing in for the Retail space, with Costco COST posting its fifth-straight earnings beat: $3.04 per share topped the Zacks consensus by 4 cents, while quarterly sales of $52.60 billion outpaced expectations of $51.76 billion. Twelve-week comps overall reached +15%; adjusted for gas prices in the U.S., this number comes to a still-strong +11% in the quarter. Yet shares sold off on the news in late trading, though they are buoying back toward the closing price.

The Gap, Inc. GPS, on the other hand, is down -15% in late trading on a big miss on its bottom line: -44 cents per share versus -11 cents expected. Revenues beat consensus, however, with $3.48 billion outpacing the $3.43 billion expected. Comps were down -14%, as compared to expectations of -12%, even with a surprise boost from Banana Republic, which was +27% year over year.

The best of the bunch this afternoon comes from cosmetics retailer Ulta Beauty ULTA, which posted a huge beat on the bottom line — $6.30 per share versus $4.44 expected — on $2.35 billion in sales, which surpassed the Zacks consensus $2.14 billion. Comps rose +18% and guidance for full-year earnings and revenues were also up; shares have gained +7% in the after-market.

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