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Markets Keep Rally Going (For Now); Home Sales Lower; COST, GPS, ULTA Report

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Markets rallied again today, building up investors’ hopes that we may finally have a breakout week to the upside for the first time in nearly two months. The Dow gained +517 points, +1.61%, the S&P 500 was +1.99%, the Nasdaq won the day, +2.68% or +306 points and the small-cap Russell 2000 +2.51% on the day.

Pending Home Sales for April, released this morning by the National Association of Realtors, came in almost twice as low as expected: -3.9% on the headline, from -2.0% estimated, and well off the previous month’s downwardly revised -1.6%. This marks six straight months of Pending Home Sales declines, the slowest pace in almost a decade.

This metric is a forward indicator on the housing market, as is thus far the most sluggish we’ve seen in a series of softer figures elsewhere in the industry. Rising mortgage rates have added an average of 25% higher costs for housing year over year, with continuing higher prices adding another 15% on average. Potential home buyers, when not being priced out of the market completely, are starting to turn to 5-year ARMs and expanding the regions of their home searches.

The only region to witness month-over-month gains was the Midwest, +6.6%, though still -2.8% year over year. The West dropped -4.3% from March, the South -4.7%, and the Northeast is down a whopping -16.2% month over month. These figures, as we’ve discussed in this column recently, may have a positive effect on overall inflation numbers if price points start coming down, over time.

Q1 earnings reports continue filing in for the Retail space, with Costco (COST - Free Report) posting its fifth-straight earnings beat: $3.04 per share topped the Zacks consensus by 4 cents, while quarterly sales of $52.60 billion outpaced expectations of $51.76 billion. Twelve-week comps overall reached +15%; adjusted for gas prices in the U.S., this number comes to a still-strong +11% in the quarter. Yet shares sold off on the news in late trading, though they are buoying back toward the closing price.

The Gap, Inc. (GPS - Free Report) , on the other hand, is down -15% in late trading on a big miss on its bottom line: -44 cents per share versus -11 cents expected. Revenues beat consensus, however, with $3.48 billion outpacing the $3.43 billion expected. Comps were down -14%, as compared to expectations of -12%, even with a surprise boost from Banana Republic, which was +27% year over year.

The best of the bunch this afternoon comes from cosmetics retailer Ulta Beauty (ULTA - Free Report) , which posted a huge beat on the bottom line — $6.30 per share versus $4.44 expected — on $2.35 billion in sales, which surpassed the Zacks consensus $2.14 billion. Comps rose +18% and guidance for full-year earnings and revenues were also up; shares have gained +7% in the after-market.

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