Consumers grew more confident in May, while the new home market showed surprising strength during the month. Stocks were strong throughout the morning, pushing the S&P 500 Index temporarily to a new high, but investors grew skittish in the afternoon after reports of broadening conflict in Iraq and Syrian warplanes striking in the country.
The Dow fell 119 points, with 26 of its 30 components losing ground; the S&P 500 dropped 12; and the Nasdaq was off 18. Decliners led advancers by 5 to 3 on the NYSE and 12 to 5 on the Nasdaq. The prices of Treasuries strengthened. Gold futures rose for the fifth-straight session, closing $2.90 higher at $1,321.30 an ounce, and the price of crude oil fell 14 cents to settle at $106.03 a barrel.
In Earnings News:
- Walgreen Co.’s shares (WAG) fell 1.70% after the pharmacy chain missed analysts’ expectations for earnings and revenue and reported tightening margins. For its fiscal third quarter that ended May 31, Walgreen reported net income of $722 million, or 75 cents a share, up 16% from the prior-year period, on revenue of $19.4 billion, up 5.9%. Gross margins slipped from 28.5% to 28%. Customer traffic declined slightly, while the average customer purchased more.
In Other Business News:
- New-home sales jumped 18.6% in May from April, according to the Commerce Department. The seasonally adjusted annualized rate of 504,000 new-home sales was 16.9% higher than a year ago and the highest in more than six years. Year over year, the median new-home price rose 6.9% to $282,000. The big jump in sales was led by the Northeast, where sales soared 54.5%, although off a lower base than the more high-volume areas in the West (up 34.0%) and the South (up 14.2%). New-home sales in the Midwest were the weakest, up only 1.4%.
- Annual home price gains continued to slow in April, according to the Case-Shiller 20-City Home Price Index. The index rose 10.8% year over year, down from a 12.4% annualized pace in March. Month over month, the index rose 1.1%, with only Boston showing a faster rate of annualized increase than the prior month.
- Brushing off international problems, U.S. consumers were more confident in May than at any time in more than six years, according to The Conference Board’s Consumer Confidence Index. The index rose from 82.2 in April to 85.2, led by consumers’ assessment of current conditions, which jumped from 80.3 to 85.1. The gap between those who say jobs are plentiful (rising from 14.2% to 14.7%) and those who say jobs are harder to get continued to narrow (dropping from 32.2% to 31.8%).
- The government of Japanese Prime Minister Shinzo Abe announced plans to cut Japan’s corporate tax rate below 30%. The plan would take effect in a sequence of cuts starting next year to bring the rate down from its current level of 36%, one of the highest among developed countries.
We may or may not have reached Peak Internet Bubble, but we’re getting closer to Peak Speculation about Whether We’re in Another Internet Bubble. First, as we reported last week, there’s the “Yo” app, whose single purpose is to send the word “Yo” to your contacts. People flocked to the app precisely because it seemed so limited. Now the app has turned out to be limited and riddled with security flaws. Everyone who signed up for it is at danger of having their phone number leaked to the world. Users could delete the app, but that won’t delete their account (it apparently takes an email to do so). Yo is so single-purpose that “delete account” isn’t one of its purposes.
What drew interest to Yo wasn’t simply how purposeless it was but how it managed to attract $1 million in venture capital backing. Surely there must be better uses of venture capital than to throw it at something more limited than text messaging. But, the speculation goes, all that money sloshing around Silicon Valley is having trouble settling into productive uses. The good ideas might all be used up, and maybe we’ve entered the Pets.com phase of another internet bubble. All we need now is a sock-puppet that says “Yo.”
What could disprove that thesis is if there were another app of questionable usefulness that did not, in fact, get venture capital funding. Case in point: Washboard. Washboard is a mail-based service that will turn 37 cents into a quarter, a wonderful service for people whose main problem is excess money. Washboard’s idea is that many people don’t have quarters to go to the Laundromat, and so, if you send them money via credit card, they’ll mail you quarters. Currently, Washboard has two plans. For $14.99, Washboard will send you $10 worth of quarters a month. If you’re one of those obsessively clean types who like to do laundry more than once a month, you can go with the premium plan of $26.99 and get $20 in quarters. The saving grace of Washboard is that its founders realize it’s sort of a limited idea and they don’t expect any outside funding. It’s hard to take seriously any company whose major competition is a change jar.
Finally, this burst of uselessness has spawned a uniquely tech-type protest, the Nothing App. It has no buttons, no functions, no text, no anything. It’s just a clear screen that is so full of nothing that at this point it exists only as source code. And that’s the point, according to the app’s designer. Why put effort into yet another phone app when the considerable brain power of Silicon Valley could be used to solve bigger problems, like providing clean drinking water to areas that need it? At the very least, I like the app’s philosophical approach to security: Nothing goes in, so nothing goes out.
Do you think we’re in yet another internet bubble, or are these apps distractions from the success stories? Leave your thoughts in the comments area below.