New inventory in Irvine, Calif. (Brian van der Brug / Los Angeles Times via Getty Images)

Homebuilding stocks get another burst of outperformance

Even though they’re building remarkably few houses.

8/21/24 11:28AM

A better-than-expected earnings report from luxury homebuilder Toll Brothers is giving a fresh burst of momentum to homebuilding stocks on Wednesday.

Toll Brothers brought in $482 million in profits — 10% better than expected — on slightly better than expected sales of $2.73 billion. Profit margins, on an adjusted basis, of nearly 29% were a key driver of outperformance. Costs only rose slightly.

The stock soared on the report, pulling along share prices of competitors and extending a solid run of outperformance for the sector.

The angle of incline for homebuilder shares has risen sharply as inflation has softened in recent months, and investors have concluded that the Fed is all but certain to cut interest rates when it meets next month. (Though there remains some debate about how big a cut it will deliver.)

Of course, the housing market is the example par excellence of an interest-rate sensitive sector of the economy. The expected decline in Fed rates has been transmitted through the bond market into a drop in mortgage rates, which are now around 6.50% for the 30-year fixed.

That should boost activity among homebuyers. But, for my money, the remarkable thing about the recent rise in home builder share prices is that it comes amid a remarkable dearth of actual homebuilding. Housing starts tumbled to a four-year low in July — which, to be fair, was likely affected by bad weather — but still!

How does this make sense? Well, believers in the all-seeing power of financial markets might argue that perspicacious traders are simply pricing in the uptick in activity that they see coming in the future as mortgage rates move lower. Slightly more cynical observers might simply note that the current state of affairs in the housing market — low inventory, high prices — means that homebuilders don’t have to build as much to make the amount of money Wall Street expects. Probably a little bit from Column A, a little bit from Column B.

Max Knoblauch

Alaska Air declines as it warns its profit will be dinged by fuel costs, weather, and air traffic control problems

Seattle-based Alaska Air is trading lower Monday afternoon as the airline warned investors that its third-quarter profits will likely come in on the low end of its prior outlook.

When Alaska Air reported its second-quarter earnings in July, the airline said it expected third quarter earnings to land between $1 and $1.40 per share. As of early Monday, analysts polled by FactSet estimated $1.35.

A host of issues are behind the company's expectations of a dent to earnings. ALK said it's projecting fuel costs to climb to between $2.50 and $2.55 per gallon, up from its previous estimate of $2.45, due to West Coast refinery disruptions. Weather and air traffic control issues “led to increased costs from overtime, premium pay and passenger compensation,” said Alaska.

With Monday afternoon’s move, ALK shares are down about 8% year to date.

Matt Phillips

48m

Intel cuts expense forecast, sees best gain in weeks

Intel shares jumped after the partially nationalized US chip giant snipped its forecast for operating expenses this year to $16.8 billion from $17 billion after finalizing the divestiture of 51% of its stake in its Altera programmable chip unit to private equity firm Silver Lake.

Shortly after 12 p.m. ET the stock was up 4%, Intel’s best gain since August 22, when the Trump administration announced the extraordinary step of having the federal government take a 10% ownership stake in the private chip company.

Intel trims full-year expense outlook following Altera stake sale

OpenAI doesn’t have the cash to pay Oracle $300 billion — raising it will test the very limits of private markets

The ChatGPT maker plans to burn though $115 billion by 2029. No company in history has ever lit that much money on fire intentionally, let alone tried funding such a splurge through private markets alone.

David Crowther2h

Matt Phillips

Seagate, Western Digital romp as hard drive makers dominate S&P 500 leaderboard

Hard drive makers Seagate Technology Holdings and Western Digital surged Monday, putting them comfortably in the top two spots of this year’s top performers in the S&P 500.

Shortly after 10:30 a.m. ET, they were looking at gains of roughly 145% and 130%, respectively, for the year.

Not much news on the day, though Bank of America analysts have boosted the price target for Seagate to $215 from $170 while upwardly revising their outlook for hard disk drive demand this year, per The Fly.

Positive background music on the US and China’s trade relationship, important to IT hardware makers, is also likely helping, along with a general upswing in the AI data center trade.

Data storage is so hot right now

Positive background music on the US and China’s trade relationship, important to IT hardware makers, is also likely helping, along with a general upswing in the AI data center trade.

Luke Kawa

International investors want to own US assets — and have nothing to do with the US dollar

Looking at ETF flows, Deutsche Bank’s George Saravelos found that 80% of recent foreign inflows into US stocks and 50% of inflows into US bonds have been on a hedged basis.

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