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Markets Marginally Lower After Powell Talk; KBH Beats in Q2

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Market indices in this Hump Day session slid into the close, but practically hugged the zero-balance for most of the last half-hour of trading. In any case, we finished much more admirably than we began: the Dow was -48 points, -0.16% on the day, the Nasdaq was -0.15% and the S&P 500 -0.13%. The small-cap Russell 2000 took up the rear, but again, only marginally: -0.22%.

Is it good news? Fed Chair Jay Powell found himself accentuating the positives in the U.S. economy this morning before the Senate Banking Committee, in which he told the panel the U.S. banking industry is “very strong,” that the Fed understands the full extent of inflation challenges, and that it’s not too late to bring inflation under control. These all proved to be a decent salve for market participants, at least for a short while.

Powell did not suggest the size of the next rate hike, but did tell senators to expect more raises in the near term. (The next meeting of the Federal Open Market Committee [FOMC] is scheduled for July 26th and 27th.) The Fed Chair continued to speak about optimum inflation being 2%, and that the FOMC was committed to bringing inflation down to that level. Thus far, no moving the goalposts on “optimum inflation.”

Economic data picks up next week and the week after that, and from there we’ll dovetail into the heart of Q2 earnings season. This ought to give plenty grist for the mill to the Fed to make informed choices. The next CPI report, for instance — that of the +8.6% “inflation metric heard ‘round the world” last time around — comes three weeks from today.

After today’s closing bell, we do see Q2 earnings for KB Home KBH, the Zacks Rank #4 (Sell)-rated homebuilder ahead of the numbers. Earnings and sales surprised to the upside in the quarter: $2.32 per share came in well ahead of the $1.97 in the Zacks consensus, on revenues of $1.72 billion compared to the $1.61 billion expected.

The median price of a newly built home in the quarter by KB Home grew +21% to $494,300, which is a reflection of the robust strength in Housing (at least before the Fed began raising interest rates more than a quarter-percent). The company does see its sales rate moderating going forward, but total sales expectations are higher for next quarter.

Shares are up +1.9% on the news in late trading. KB Home has only missed earnings estimates twice in the past five years (one of those times was the previous quarter), but its stock price is still nearly -19% in the past month alone; -39% year to date.

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