Housing, Banking Sectors Lead Market Rally
Tuesday, May 19, 2009
Stock markets shot up as much as 3 percent yesterday as investors shook off last week's malaise, cheered by encouraging reports in the housing sector.
Home-improvement chain Lowe's announced better-than-expected earnings, and a home-builders group said confidence in the market for new homes has risen for the second straight month. The news gave investors enthusiasm to buy, sending the blue-chip Dow Jones industrial average up 235.44 points, or 2.85 percent, to 8504.08. The broader Standard & Poor's 500-stock index jumped 26.83 points, or 3.04 percent, to 909.71, putting it back in positive territory for the year. The tech-heavy Nasdaq rose 52.22 points, or 3.11 percent, to 1732.36. And oil went above $59 a barrel.
"The Armageddon is behind us," said James Cox, managing partner at Harris Financial Group in Richmond. "We've fixed the credit crisis. We're good. Now we can go back and focus on the things that led us into this thing to begin with."
The surge extended to the financial sector as well, which gained nearly 5 percent. Bank of America jumped 9.9 percent to $11.73 in heavy trading after a favorable recommendation from Goldman Sachs. Energy stocks rose 4 percent, and the price of a barrel of crude oil for June delivery increased 8 cents to $59.03 on the New York Mercantile Exchange.
"To me, that means that this rally is probably going to extend itself and has long legs," said Peter Cardillo, chief market economist with New York-based Avalon Partners.
The markets had stumbled last week after surging for the past two months. The S&P 500 had dropped into negative territory again for the year after recouping its losses earlier this month. Unexpectedly weak retail sales data set investors on edge, fueling fresh concerns that the recession's stranglehold on shoppers has not loosened.
Yesterday, those concerns seemed to take a back seat. Investors found some hope in earnings reported by Lowe's, which did not lose as much money as expected. The company said its profit fell to $476 million during the first quarter -- a nearly 22 percent decline from the previous year -- but that it saw encouraging signs in sales of small, outdoor project items as spring arrived.
"In recent weeks we have seen consumer confidence improve, housing turnover show signs of a bottom in certain markets, and home prices slow their decline," said Robert A. Niblock, Lowe's chairman and chief executive. "These are all positive signs for the stabilization and ultimate recovery of home-improvement industry sales, but since many of these variables remain at or near historic lows, we will continue to plan conservatively and manage expenses appropriately."
Shares of Lowe's gained $1.49, or 8.08 percent, to close at $19.94. Rival Home Depot, which is scheduled to release earnings tomorrow, was up $1.62, or 6.64 percent, to close at $26.02.
Meanwhile, the National Association of Home Builders reported that builders' confidence in the market for new, single-family homes rose for the second straight month to the highest level since September. The NAHB/Wells Fargo Housing Market Index increased two points this month to 16, the group said.
"This continued increase indicates that home builders feel we're at or near the bottom of the market," said David Crowe, NAHB chief economist.
For the year, the Dow is down 3.1 percent, or 272.31 points. The S&P is up 0.7 percent, or 6.46 points, and the Nasdaq is up 9.85 percent, or 155.33 points.