Following a 3% gain on Monday, the S&P 500 is about neutral after the first hour of trading on Tuesday, a fitting response to a better than expected earnings report from Home Depot contrasts with worse than anticipated housing data.
As of 10:30 am EST, the S&P 500 is up 0.44% to 913.7, the Dow has edged up 0.04% to 8507, and the Nasdaq has turned positive to 1736.
To start Tuesday off on a positive note, Home Depot announced its Q1 earnings beat expectations with a 44% gain. On Monday, a similar report from its rival, Lowe’s, had initiated gains across all three indexes.
But data released at 8:30 reversed optimistic sentiment. Housing starts ― plans for building new homes ― fell dramatically by 12.8% in April to an annualized pace of 458,000, much lower than the consensus call for 523k. In the past year, housing starts have now plummeted 54.2%.
Millan Mulraine, economics strategist at TD Securities, called the housing report “shockingly weak,” adding that the only silver-lining was that the decline occurred in the most volatile components.
Single-family starts actually rose 2.8% in the month to 368,000, but multiple-unit starts fell 42.2% to an annualized pace of 78,000.
“With the U.S. labour market continuing to weaken at a fairly dramatic pace and the inventory of unsold homes continuing to weigh heavily on new residential construction activity, a sustained recovery in this segment of the U.S. housing market is unlikely to come for some time,” Mulraine added.
Similarly, DeutscheBank chief U.S. economist Joseph LaVorgna said the housing market is close to a bottom, but it will be a while before the market picks up again. “We do not anticipate a large rebound in activity until housing inventories--particularly new home inventories--have been further reduced,” he said.
Building Permits ― a forward-looking measure that anticipates housing starts by one or two months ― don't suggest improvement in the coming months. Permits fell 3.3% in April to an annualized pace of 494,000 units, well below the consensus call for an uptick to 530k.
The only other data so far released were two weekly surveys of the retail sector.
The ICSC-Goldman Sachs survey of major retail chains said sales dropped 1.2% in the week ending May 16, marking a 0.3% reduction compared to this time last year.
The Johnson Redbook survey, which looks at department stores, chain stores, and discounters, also reported a 0.3% drop compared to last year, as sales in May are down 0.2% compared to April.