1) Earnings keep rising: We started the quarter with fourth-quarter estimates at about 3 percent growth for the S&P 500. Today, with nearly 40 percent of the S&P 500 component companies reporting, earnings growth is at 5.15 percent, according to S&P Capital IQ. Revenue growth, which was essentially zero last quarter, is now at 4 percent.
Some 67 percent are beating earnings estimates (the 12-year average is 62 percent), while 65 percent are beating revenue estimates (the 12-year average is 61 percent). Last quarter, only 38 percent beat revenue estimates.
My main thesis: Earnings growth is not strong, but there are clear signs that the third quarter may have been a trough for earnings.
2) Commodities are strong: I noted a few days ago that the early birds have been pushing the Big Trade (they hope) of 2013 — short Treasurys, go long cyclical stocks and copper.
Today, commodities are indeed moving: Copper is up 1.2 percent; aluminum and zinc are up 2.5 percent, and nickel is up 3.2 percent.
In stocks, the global rally shows no signs of abating. Japan's Nikkei closed at a 33-month high as the yen continues to weaken against the U.S. dollar and euro. Hong Kong closed at a 21-month high.
3) I got some pushback from traders when I noted that builder D.R. Horton reported the average selling price was up 15 percent in their communities ... the pushback implied it was unrealistic to expect these kind of price gains in the housing market this year.
I agree that 15 percent price increases are unlikely nationwide, particularly for existing homes, but 15 percent is not far off for some new homes. Consider that Credit Suisse analyst Dan Oppenheim today raised estimates and target prices for all the builders he covers, and upgraded KBH to "outperform" from "neutral."
The reason: accelerating order growth and margin expansion, largely due to higher prices. He expects home prices to increase 4 percent to 5 percent in 2013, but also noted "our recent community checks in Northern and Southern California suggested prices are up double-digits in many communities. This will lead to meaningful margin expansion."
Meantime, Ryland is at a 5.5-year high after beating on top-line and bottom line last night. Fourth-quarter orders were up 64 percent, but excluding a recent acquisition were up 52 percent, well above consensus of about 40 percent.
Orders are strong for all the big builders: D.R. Horton up 39 percent; Toll Brothers is up 36 percent; Lennar is up 32 percent; and Beazer Homes is up 29 percent. Only KB Homes, at 4 percent, was on the disappointing side.
It did note that construction costs are coming down, which was interesting. However, elsewhere the industry is talking about higher prices for scarcer lots, and a shortage of skilled labor in some parts of the country.