Toll Brothers is Monday's IBD Stock Of The Day as the builder of luxury homes' stock rallies amid eager anticipation of tomorrow's consumer price index. More benign inflation data could cement Fed rate-cut expectations and halt the recent rise in Treasury yields that has pushed the 30-year fixed mortgage rate back near 7%.
Toll shares joined a broad rally by homebuilders and some other interest-rate sensitive groups in Monday stock market action, including retailers and regional banks. These groups are rallying strongly, despite only a mild easing of Treasury yields. That's why it looks like investors are front-running the CPI inflation data, even if bond investors are being a bit more cautious — partly because of the run-up in stock prices.
CPI, Retail Sales Loom Large
Investors' risk appetite got a shot in the arm on Friday morning, when revisions of 2023 data confirmed inflation's dramatic fall in the second half of the year. More tame inflation data would be the best antidote against the apparent squeamishness toward rate cuts that chair Jerome Powell and other policymakers have hinted at since the Jan. 31 policy update.
Economists expect the CPI to rise 0.2% on the month, lowering the 12-month inflation rate to 3% from 3.4%. Core prices, excluding food and energy, are seen rising 0.3% from January, lowering core inflation to 3.7% from 3.9%.
Dow Jones Stock Pegs High, Rival Breaks Out On Upgrade
Retail sales data for January out Thursday at 8:30 a.m. ET also will influence the interest-rate outlook because the Fed would prefer to see consumers and the broader economy downshift to second gear before cutting rates. Also on Thursday morning at 10 a.m. ET, the NAHB/Wells Fargo Housing Market Index will gauge homebuilders' view of current homebuyer single-family home sales, as well as the six-month outlook.
Toll Earnings Due Feb. 20
On the Dec. 6 fiscal Q4 earnings call, Toll Brothers CEO Douglas Yearley said that demand remained solid early in the first quarter of 2024, which ran through January. TOL is set to report results after the market close on Feb. 20. Analysts expect EPS to rise 5% in Q1 but project it will dip 1% for the full year.
On the Q4 call, Yearley said he was "encouraged by the recent 75 basis point decline in mortgage rates." He added, "With inflation easing over the past few quarters, we believe rates may drop further and the timing of the rate decline is setting up nicely for the upcoming spring selling season."
While mortgage rates did decline further, they've rebounded over the past two weeks, following a strong jobs report and cautious Fed comments.
Toll Brothers said its average selling price fell 11% from a year ago in Q4, but that was due to a shift in mix to lower-price homes. "It means our strategy of broadening our product offerings to include lower price points and capture greater market share and growth opportunities is working," Yearley said.
TOL Stock
Toll Brothers stock powered up 4.7% Monday to 105.75, nearing a 105.91 buy point from a flat base on slightly above-average volume. Toll Brothers' break above the 101.98 top of a tight area offered an early entry point.
On Monday, SwingTrader added Lennar to its portfolio as it cleared a flat-base buy point. LEN stock rose 2.8% to 157.35.
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