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Toll Brothers Inc (TOL), Hewlett-Packard Company (HPQ): How the Dow Avoided a Bloodbath

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Toll Brothers Inc (NYSE:TOL)Before the opening bell this morning, it appeared that there would be a bloodbath. As markets opened and closed around the world, things were going from bad to worse, culminating in a staggering 7.3% decline in the Japanese Nikkei 225. Yet the Dow Jones Industrial Average is paradoxically higher late in the trading session. What gives?

The answer is that there were two unequivocally positive economic reports released today by the U.S. government. The first concerned home sales and prices. Data from the Department of Commerce (link opens PDF) showed that the volume of single-family home sales last month climbed to a seasonally adjusted annualized rate of 454,000. While that was only 2.3% higher than the rate in March, it equated to a staggering 29% increase over the same month last year. The same report also estimated that median home prices increased by 15% from $236,400 in April of last year to $271,600 this year.

Given the centrality of the housing market to the national economy, the significance of these results can’t be overstated. It’s worth noting, moreover, that they provide further confirmation of the growing profitability of homebuilders. Yesterday, for example, the nation’s largest luxury homebuilder, Toll Brothers Inc (NYSE:TOL), released earnings for its fiscal second quarter. Among other things, it notched a 36% improvement in net signed contracts on a year-over-year basis. On the heels of today’s news, shares of the company are up 2%.

The second positive economic development concerns jobs. According to the Department of Labor, the number of jobless claims filed last week fell by 23,000 from the preceding week. As the following chart illustrates, while this is off the recent lows for this figure, it nevertheless puts the economy back on a level comparable to the beginning of 2008, before the financial crisis sent unemployment spiraling higher.

In terms of individual stocks, shares of Hewlett-Packard Company (NYSE:HPQ) are far and away the best-performing component of the Dow today, up 15.6% at the time of writing. The struggling PC-manufacturer released its second-quarter earnings last night. As my colleague Dan Dzombak noted, Hewlett-Packard Company (NYSE:HPQ)’s earnings per share beat analyst estimates, but its top-line revenue figure came up short. Given its abysmal financial performance of late, however, the bottom-line beat was clearly more than enough to satisfy investors.

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