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Home builders, we have a problem: rising rates may end rally

Brett Gunlock | Bloomberg | Getty Images

The big problem for stocks yesterday was higher rates, with 10-year yields resuming their creep higher. That is likely to remain a problem today — especially if housing stocks come under more pressure.

Globally, there was modestly better macro news, with gross domestic product (GDP) growth in the UK and German business confidence a bit better than expected.

Yesterday and today represented the peak of earnings season. Over the next several weeks, there will be a shift to more macro issues when we have meetings of the Federal Reserve, European Central Bank, and the following week the Bank of Japan. The July jobs report is also out next Friday.

Earnings:

a) Is the homebuilding rally over? Pulte disappointed: they misses on top and bottom line as well as on revenues. Prices were up, but they sold far fewer units than expected. New orders fell BELOW consensus, down 12 percent year over year. The only good news is a 5 cent quarterly dividend and a new buyback to offset internal stock issuance.

This will re-ignite the debate on higher rates. Pulte said higher rates had "little effect on overall activity," but that is hardly reassuring in light of these results.

This is a bad day for a home building IPO, yet WCI Communities (WCIC), a Florida homebuilder, is coming to market nonetheless. They priced 6.8 million shares at $15, the low end of the $15-$17 price talk. This is the fifth home builder to go public this year, after a 10-year drought, and it's been a mixed bag. Take a look at the numbers:

July 17: UCP priced at $15; is now trading 4.6 percent off the offer price;

May 15: William Lyon Homes priced at $25; now a percent off;

April 9: Taylor Morrison Homes priced at $22; now 10 percent above the offer price; and

January 31: Tri Pointe Homes; priced at $17; now 5 percent below the offer price.

In other sectors:

b) What slowdown in smartphone sales? Qualcomm, whose chips are used extensively, had a good quarter. While earnings were in-line, revenues of $6.24 billion were slightly above consensus. "We still see a rapid adoption of mobile technology...we're still in an early state of adoption with a long runway," CEO Paul Jacobs said.

c) Strength in airlines continue: United Continental and Alaska both reported better than expected earnings, and Southwest reported in-line estimate.

d) Defense companies continued strong: LLL and Raytheon beat on top and bottom line...RTN raised its full year guidance, but L-3 lowered.

e) Biotech is hot. My TraderTalk post last night highlighted the hot IPO of biotech firm Agios Pharmaceuticals (AGIO), which specializes in cancer treatments. The offering priced Tuesday night at $18, well above price talk of $14-$16. It opened at $29...and closed yesterday at $31.38 — up 73 percent.

Onconova Therapeutics (ONTX) specializes in cancer treatments, and targeted anti-cancer agents designed to work against specific cellular pathways that promote cancer. The company priced 5.2 million shares at $15, above the initial share talk of 4.62 million shares and $12-$14 price range.

Conatus Pharmaceuticals (CNAT) has treatments for liver disease; priced 6 million shares at $11, above the initial share offering of 5 million shares and in the middle of the $10—$12 price talk.

Cellular Dynamics International (ICEL) manufactures human cells for drug discovery and screening, to test the safety and efficacy of drug candidates, and for stem cell banking. Insiders are buying $10 million, and the offering priced 3.9 million shares at $12, the low end of the $12—$14 price talk.

By CNBC's Bob Pisani

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  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

Wall Street