Tuesday, August 26, 2014
Stocks appear on track to cross the milestone level in today’s session after failing to do it on Monday. Perhaps the blockbuster Durable Goods orders report will push the S&P 500 above the big round number even though the report’s internals aren’t that good.
We got a high-flying Durable Goods orders report this morning, with the ‘headline’ read up an eye-popping +22.6% vs. +2.7% the month before, which was revised higher from the originally released +0.7% increase. The expectation was for a ‘headline’ gain of +5.1%. The ‘headline’ durable goods orders report is notoriously volatile from month to month, primarily due to the lumpy nature of aircraft orders at Boeing (BA). The aircraft maker had a blockbuster July, with orders for 324 mostly 777X planes.
Excluding transportation, the durable goods orders read missed expectations by declining -0.8% in July after the +3% gain in June (revised higher); the consensus expectation was for a +0.4% gain. Non-defense capital spending excluding aircraft, part of the durable goods orders read that is considered a proxy for business capital spending, also fell in July, down -0.5%. Hard to draw any firm conclusions from one-month’s read on this jumpy series, but the internals of this report aren’t good. Business capital spending has been a weak link in this recovery, which is expected to start ramping up in the current and coming quarters. But we didn’t see that in this report.
In corporate news, the Burger King (BKW)/Tim Horton (THI) deal that was all over the news on Monday became official today. The $11.4 billion deal will create the third largest fast-food chain, with the domicile relocation to Canada part of the its ‘tax inversion’ component. Warren Buffett’s Berkshire Hathaway (BRK.B) is funding the deal with a $3 billion preferred equity financing.
Director of Research
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