Market Sentiment Positive Despite A Volatile Week – Economic Highlights

With not much on the data front this morning, I will touch briefly on a couple of homebuilder companies that have been among the early reporters of fiscal first quarter results. I am referring to Lennar Corp. (LEN), which reported on Thursday, and K.B. Home (KBH), which reported this morning. Both homebuilders show deceleration in results, even though both show strong gains in deliveries, new orders and sales.

The homebuilder sector as a whole is expected to bring in +15.1% total earnings growth on +9.1% higher revenues, which would follow earnings growth of +18.6% on +5.5% higher revenues in the preceding quarter. Homebuilder stocks have been strong performers lately, with the sector’s stock prices up +4.2% in the year-to-date period — better than the S&P 500’s +1.8% gain in the same time period.

The housing focus is perhaps justified since today is (officially) the first day of Spring, when housing activities typically gain pace. The trend lately hasn’t been that inspiring, with the recent data on Housing Starts and mortgage applications coming in weaker than expected. The Starts number falling below the 900K level on seasonally adjusted annualized basis was particularly disappointing, though many see that more as a reflection of bad weather, particularly in the Northeast.

Next week’s New and Existing Home sales readings are expected to corroborate what we have been seeing lately from other housing reports. But the expectation is that the picture will start improving going forward as a result of labor market gains, still-low interest rates and lower energy prices. All of this makes sense, but we didn’t see them giving the sector a boost last year even though they were equally in place.