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.

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.

College Football Playoff Semifinal at the Goodyear Cotton Bowl Classic - Clemson v Notre Dame

Max Knoblauch

43m

Nio climbs ahead of new SUV launch as Chinese EV giants recommit to paying suppliers faster

Shares of Chinese EV maker Nio climbed in Monday morning trading as investors cheered news that its ES8 SUV — priced to compete with Tesla’s Model Y — will begin deliveries this weekend.

Nio may also be seeing a boost from the recommitment by several Chinese EV giants on Monday to pay their suppliers within 60 days. That effort could help tame some of the brutal price wars between automakers in the country, which the Chinese government has struggled to contain.

The move is seen as a boost to the stability of the Chinese auto industry, and Nio rivals Li Auto and BYD also climbed.

At the end of 2023, Nio took nearly 300 days to pay its suppliers, according to Bloomberg reporting. In June, Nio and 16 other Chinese automakers agreed to the 60-day payment window, though a government report in August found that only three had set up payment systems.

Luke Kawa

CoreWeave soars on $6.3 billion cloud computing purchasing agreement with Nvidia

Shares of CoreWeave are flying higher in early trading after the company struck an agreement with Nvidia that will see the chip designer purchase all of CoreWeave’s unused cloud computing capacity through April 13, 2032.

The new order has an initial value of $6.3 billion, per a filing from CoreWeave that outlines this modification to its April 2023 services deal with Nvidia.

Securing access to cloud computing capacity has been the hot topic in the AI space, which was underscored by last week’s deal between Microsoft and Nebius as well as Oracle’s mammoth pipeline of sales, thanks in large part to OpenAI.

As such, it strikes me as a bit odd that this particular agreement for CoreWeave — securing full utilization of its cloud computing capacity, which everyone seems to want and where demand appears to outstrip supply — is such a big deal, but hey.

Nvidia has secured a high degree of vertical integration throughout the AI ecosystem through its equity positions and partnerships with cloud computing and data center companies.

J. Edward Moreno

Novo Nordisk’s GLP-1 pill gets EU approval for cardiovascular benefits

Novo Nordisk rose in early trading after it announced that European regulators approved its diabetes pill to be marketed for cardiovascular benefits as well.

Rybelsus — a pill version of semaglutide, the active ingredient in Ozempic and Wegovy — will now list cardiovascular benefits on its label in the European Union. In the US, the Food and Drug Administration is expected to decide on adding the cardiovascular indication for Rybelsus later this year.

Wegovy, Novo’s blockbuster weight-loss shot, is approved to treat cardiovascular conditions in the US and EU. Expanding the conditions Novo’s drugs can be prescribed for could help the Danish pharmaceutical giant spark growth as it faces pressure from Eli Lilly’s competitor drugs.