HP's Turnaround; Correction Fears; Housing Bounces
Recapping the day's news and newsmakers through the lens of CNBC.
The global ripple effect from Wednesday's Fed tapering talk combined with weak economic data out of China----the Chinese purchasing managers index came in at a reading below 50, signaling contraction in the Chinese economy—to stoke fears of a market correction.
Japan's Nikkei shed 7.3 percent, its biggest drop in more than two years, Europeans stocks declined broadly, and U.S. equities also nosedived on Thursday morning. U.S. equity losses narrowed by the end of trading, bucking the global equities trend. U.S. jobs data was incrementally positive, in contrast to the economic reading on China.
While that labor market improvement normally would be considered good news—the number of Americans seeking jobless benefits fell to a better-than-expected 340,000—it added to market anxiety stemming from Federal Reserve Chairman Ben Bernanke's Wednesday comments linking unemployment numbers to the timing of tapering the Fed's $85 billion a month bond-buying program.
The seasonally adjusted jobless claim number drove down the four-week average to its lowest level in five years and is a positive sign.
"Look how the markets are reacting without the Fed doing anything. If you ever wondered what would happen if the Fed actually tapered, take a look at this as a small sample of what might happen. Do you think that this is what the Fed wants to happen?"—CME economist Robert Brusca
HP's Whitman on the Turnaround
When does a quarterly report saying that profit and revenue have tumbled add up to good news? When Hewlett-Packard's Meg Whitman says so.
Sure, the computer maker has been hammered by the smartphone and tablet revolution, but everyone already knew that, and after reporting better-than-expected results on Wednesday night, Whitman said that the company's decline wasn't as bad as expected and is evidence that its multiyear turnaround plan has begun to bear fruit. And despite seeing its PC sales plunge 14 percent in the first quarter, Whitman said she believes "growth is possible in 2014."
"We are embarked on a five-year turnaround journey, we're about 18 months into that journey, and I think we are right where we thought we would be. We feel good about where we are."—Hewlett-Packard CEO Meg Whitman
Housing Rebound's Foundation to Settle?
There's no place like (a new) home … assuming you can find one to buy.
The good news about the housing market is that new home sales were up 2.3 percent in April and the average price being paid for them has never been higher. The bad news is that there remains weakness in the housing market, and while momentum should continue to build in the near term, the long-term outlook could be less rosy.
Low mortgage rates and steady job growth have persuaded more Americans to buy homes, which is good for the economy, as homeowners tend to spend more freely. But with just a 4.1 month inventory, finding a new home is a tough task. Some home builders, faced with higher land, labor and materials costs, are slowing construction to maintain pricing power.
In April, the median price paid for a new home was $271,600, 8.3 percent higher than the previous month and 13.1 percent higher than a year earlier, and there could be more room to grow. But that must be balanced with the fact that housing starts plunged 16.5 percent in April, though permits surged.
Housing experts aren't so sure that housing can satisfy Wall Street's expectations. Sure, housing has been good in the short run and mortgage rates are still low, but credit is still tight. And short inventory, while keeping prices high, probably means that the foreclosure process hasn't gone fast enough, which points toward a shadow inventory and more difficulty for first-time buyers seeking bargains.
"Higher prices of houses and other assets, in turn, have increased household wealth and consumer confidence, spurring consumer spending and contributing to gains in production and employment."—Fed Chairman Ben Bernanke
"There is momentum in the housing market. Momentum suggests increases in the next six to 12 months. [Longer term], I'm not so optimistic. It's not going to be another big up and down."—Robert Shiller, Yale economist
Corporate Tax Wish List
The battering Apple CEO Tim Cook took earlier this week brought the broader issue of corporate tax reform into the spotlight.
CNBC's Larry Kudlow agreed with the Apple CEO that all tax loopholes should be eliminated. Also on Kudlow's corporate tax reform wish list is a law that state and federal corporate tax rates, when combined, should not exceed 25 percent. And taxes should be territorial, meaning they are paid where revenues are earned and not subject to double taxation when the money is brought home.
Whether any item on the corporate tax reform wish list becomes reality may depend on the proposals being tied to the debt ceiling bill that will come to the floor in October or November, Kudlow said. Of course, there is a precedent for these reforms; similar measures were enacted under President Ronald Reagan in 1981 and 1986.
"The USA is not competitive in the global race for capital and the global race for tax reform."—Larry Kudlow