STOCKS RALLY: Here’s What You Need To Know

MYLES UDLAND

 AUG. 20, 2014

REUTERS/Aly Song

Stock market bulls are beating bears this week.

Stocks rallied for the second straight day as housing data on Tuesday morning came in better than expected while inflation data was in-line with expectations.

First, the scoreboard:

• Dow:16,917.28, +78.5, (+0.5%)
• S&P 500: 1,981.50, +9.8, (+0.5%)
• Nasdaq: 4,527.36, +19.1, (+0.4%)

And now, the top stories on Tuesday:

1. The pace of housing starts rose 15.7% to an annualized pace of 1.093 million units in July, beating expectations for a pace of 965,000. Permits increased 8.1% to a rate of 1.052 million, which was in-line with expectations. Ian Shepherdson at Pantheon Macroeconomics had a mixed read on the report. “In one line: Startling headline gains but underlying trend in core single-family is much less exciting,” Shepherdson said. “In the single-family sector activity has returned to its pre-winter level but permits are starting to level off again. With the stock of homes for sale well above its cycle lows, price gains slowing and new home sales flat, it is hard to see why construction would keep rising.” 

2. The latest consumer price index, or CPI, report from the BLS showed that “core” inflation, which strips out food and gas, rose just 0.1% month-over-month in July, slower than the 0.2% that was expected by economists. Headline CPI, which includes food and fas, rose just 0.1% month-over-month, the slowest increase for the headline index since February. On a year-over-year basis, core CPI was up 2% and the headline reading was up 1.9%, with both readings in-line with expectations. Following the report, Paul Dales at Capital Economics said, “The recent softening in U.S. core prices eases some of the pressure on the Fed to start considering rate hikes, although in our view only temporarily.”

3. Home improvement giant Home Depot was the biggest gainer on the Dow Jones Industrial Average, gaining nearly 6% after reporting same-store sales that grew 5.8% in the second quarter. Home Depot also earned $1.52 per share in the quarter, topping expectations for earnings of $1.44. Home Depot’s gain was also good for the second largest percentage gain on the S&P 500. 

4. Fragrance maker Elizabeth Arden saw shares get absolutely crush, falling more than 23% after reporting quarterly sales that widely missed expectations. Arden said its sales were impacted by a steeper than expected decline in sales of its celebrity fragrances, including its Justin Bieber and Taylor Swift fragrances. Sales in the quarter also fell 28.4% from the same period a year ago, more than the 10% decline expected by analysts. Arden also said that in the current quarter it expects to be challenged by the same factors that affected recent quarters.

5. Shares of chicken chain El Pollo Loco fell 10% after analysts at Morgan Stanley initiated coverage of the stock with an “Underweight” rating and a $22 price target, saying the newly-public stock has gotten ahead of itself. “The market appears to be paying a premium … far above what we consider to be fair value — and well above any reasonable peer comparable,” wrote analysts John Glass and Jake Bartlett. Glass and Bartlett outlined three cases for how the shares could trade from here: “Pollo en Fuego,” “Pollo Bueno,” and “Pollo Muertos.”

6. Shares of Dick’s Sporting Goods were up more than 1% after reporting earnings that beat expectations, though the sporting good retailer said it would take a $20.4 million charge in the second quarter related to its golf business. “We have consolidated our Golf Galaxy merchandising, marketing, and store operations into Dick’s Sporting Goods,” Dick’s CEO Edward Stack said. “In addition, we have eliminated specific staff in our golf area within our Dick’s Sporting Goods stores. These changes are necessitated by the current and expected trends in golf.” 

7. Jeff Saut at Raymond James outlined in a note to clients the “easy” strategy traders are using right now to make money: When stocks go down, buy the dip.