The biggest anticipated item this evening is the stock market’s reaction to the election. We’re not sure the market made any definitive statement about that on Tuesday. That could be because there were still some open questions as to whether the democrats would take both houses or just one.
While we knew the republicans couldn’t roll over and concede defeat, we didn’t expect the giant change in the secretary of defense as their answer to the election news. Having Rumsfeld “resign” and announcing his successor the day after the election seems like an attention grabbing move to take the spotlight off the election negatives. CNN put it that “The announcement came after exit polls from Tuesday’s election showed that nearly 60% of voters were unhappy with happenings in Iraq.” In any event the stock market seemed to be trying to pay attention to too many things.
The news out of one of the home builders, Hovnanian, was not that great and kept that group from participating in the little up move in the stock market. All of these builders seem to have been rallying with the market since the July lows. Now, in the last three weeks, they look like they’re about to drop again. Maybe people are starting to get the sense that housing is not coming back like they thought it might a few months ago.
Hovnanian’s (HOV) said "Our financial results for the fourth quarter continued to be negatively impacted by high cancellation rates and increased use of concessions and incentives, particularly on the resale of those homes which experienced contract cancellations." The company said that it is walking away from deposits on some land options saying that “Although it is painful to incur these non-cash charges, we believe it is much better than proceeding to build out these communities at very low returns or losses over the coming years.”
Toll Brothers (TOL), another home builder, reported on Tuesday evening that it too was experiencing some higher than normal cancellations. In the quarter that ended on October 31st, cancellations amounted to 37% of the contracts signed in that quarter compared with 18% in the third quarter. Back in August the company said it would be delivering 7,000 to 8,000 houses in fiscal 2007 (starting November 1st) but said this week that number would be closer to a range of 6,300 to 7,300.
In the “good” news department, CSCO announced their earnings this evening and the stock jumped over 7% after the news. CSCO’s John Chambers is normally a little excited about his company’s results and that was the case this evening. He told the market that his company’s profit rose 28% on a 25% increase in revenues in their first fiscal quarter. This comes after the company purchased Scientific Atlanta earlier this year. That purchase added greatly to these numbers in the quarter.
We note that the news on CSCO is generally something that the market takes to heart since it was one of the market darlings in the late 90’s. The market was very happy about the news this evening and we’ll see how strong it opens in the morning. There definitely is some strength in the overnight futures.
Dow Industrials: 12,176.54 +19.77 (new record)