Looking for Clues in Home Sales

GOOD MORNING. Stocks in Asia closed higher today; U.S. futures are pointing to a higher open.

Investors are due for a fresh slate of economic data this week, including figures on employment, production, home sales, and consumer confidence. Given the fragile state of the housing market, the National Association of Realtors’ existing home sales report for October will be closely watched--and likely to move stocks such as Toll Brothers (TOL), KB Home (KBH), Pulte Home (PHM), Lennar (LEN), and DR Horton (DHI).

Existing-home sales, which include single-family, townhomes, condominiums and co-ops, are based on transaction closings. The figure jumped more than 9% in September after an unexpected decline in August. The September pop was attributed to a surge of home buyers trying to close before the November 30 deadline to receive first time home buyers tax credit.

The extension and expansion of the tax credit didn’t occur in time to affect October existing home sales, which are expected to have risen to 5.7 million in October, from 5.57 million in September. That’s a modest increase compared to the jolt of closings the month prior. If the rush seen in September continues, it could offer upside while any miss would be seen as a disappointment.

A second figure to watch for is total housing inventory, which fell 7.5% in September to 3.63 million existing homes available for sale, or a 7.8 month supply at the current sales pace. That was down from a 9.3 month supply in August, and 15% below a year earlier.

IN OTHER NEWS:

It’s all about the details when Dow component Hewlett-Packard (HPQ) releases its fiscal fourth quarter earnings after the market closes today. The company already issued preliminary results earlier this month when it announced its $2.7 billion acquisition of 3Com Corporation (COMS). But following Dell's (DELL) disappointing report after the close Thursday, investors will be scrutinizing HP’s full report more closely.

The computer giant's preliminary report narrowly beat analysts’ expectations with non-GAAP earnings of $1.14 per share. Revenue of $30.8 billion was down 8% from the previous year but still well above consensus projections. CEO Mark Hurd cited “significant growth in China” as a key factor in the better-than-expected results.

With revenue down 15% year-over-year and earnings per share down 54%, Dell's results could be cause for concern for the entire sector. “Pricing was really aggressive on PCs,” keeping margins low, and HP could be facing the same problem, says Kevin Hunt, an analyst with Hapoalim Securities USA. HP’s preliminary results showed a much stronger upside surprise on revenue than on earnings, suggesting they also saw margin pressure, Hunt says.

With HP gaining market share and Dell losing it, neither company’s results offer a full picture. But taken together, these reports could point to an upcoming PC upgrade cycle, strong unit sales and weak profit margins, Hunt says. Investors will get a better sense of prospects for HP, and its competitors, in a conference call it will host after the close of the market.