U.S. equities surged on Tuesday, mirroring the rallies seen on May 10 and May 16, with all the hallmarks of a classic short squeeze. Yet the bulls were unable to push large caps back over their 50-day moving average, suggesting the downtrend from the mid-April high is still in play.
Boosting sentiment on housing was a super strong new home sales report showing April sales up 16.6% from March to the highest level since January 2008. It was the largest monthly gain since January 1992. Low mortgage rates and ongoing strength in the labor market are both playing a role here.
There was more Federal Reserve chatter as well, but it was drowned out by the excitement over the market gains and the housing market data. Philadelphia Fed President Patrick Harker on Monday night said he could easily see two or three rate hikes this year — echoing a common sentiment heard over the last few weeks that futures market expectations for a single rate hike this year are too low.
For now, investors seem to be putting this — and the possibility of a June rate hike — out of mind. But Fed chairman Janet Yellen’s speech on Friday at Harvard, if it reflects the recent hawkish bent of her colleagues, will change that blasé attitude in a hurry.
For clues as to whether Tuesday’s strength has staying power, keep an eye on these three stocks:
Toll Brothers Inc (TOL)
Toll Brothers Inc (TOL) surged 8.7% on Tuesday after reporting a fiscal second quarter earnings beat on better-than-expected deliveries that were up 9% from last year. Average home selling prices were also higher.
Also helping was that blowout new home sales report. Inventory is right, with months’ supply dropping to 4.7 from 5.5 while the number of home sold but not yet under construction improved to the best level since May 2007.
The company will next report results on Aug. 23 before the bell. Analysts are looking for earnings of 69 cents per share on revenues of $1.3 billion.
GoPro Inc (GPRO)
GoPro Inc (GPRO) enjoyed a rare dose of good news on Monday, rising 4.9% to close in on its 20-day moving average for the first time since late April. Investors were excited by two developments during the day. The first was the announcement of a multiyear global partnership with Red Bull in exchange for equity in the company. The deal will include content production, cross-promotion and new product innovations.
The second was an appearance by GPRO CEO Nick Woodman on CNBC touting inventory reductions are on track and that the Karma drone and Hero 5 camera will be ready for the holiday shopping season.
Apple Inc. (AAPL)
Apple Inc. (AAPL) shares rose 1.5% on Tuesday to continue a recent rally driven by hopes that the upcoming iPhone 7 launch will beat freshly lowered expectations.
Earlier in the week, there were reports that orders for iPhone 7 components and assembly were coming in larger than Wall Street had expected.
The company will next report results on July 19 after the close. Analysts are looking for earnings of $1.40 per share on revenues of $42.4 billion. Edge Pro subscribers are holding a position in the June $98 AAPL calls.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.
