The Herald Bulletin

Morning Update

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June 25, 2013

Stocks rise on higher home prices, durable goods

NEW YORK —  U.S. stocks rose in midday trading Tuesday, pushed higher by a trifecta of encouraging economic reports.

The Dow Jones industrial average was up 79 points, or 0.5 percent, to 14,739 at noon Eastern Daylight Time. The Standard & Poor's index was up 10 points, or 0.7 percent, to 1,583. Bank stocks, which sank the day before, rose the most of the 10 industry groups in the index.

Investors were encouraged by three main data points. The Commerce Department said U.S. businesses made more orders for long-lasting manufactured goods, including a surge in commercial aircraft orders. The Standard & Poor's/Case-Shiller 20-city home price index showed year-over-years gains in all cities tracked for the fourth straight month, a sign that the housing market is continuing to recover. And the Conference Board reported that consumer confidence rose sharply in June to the highest level in more than five years, bolstered by an improving outlook for hiring.

Shares of homebuilders, including Toll Brothers and KB Home, rose after the Case-Shiller report. Homebuilder Lennar, which also reported quarterly results that beat analysts' expectations, rose $1.20, or 3.4 percent, to $36.19. The company said demand in all its housing markets continues to outpace supply.

Jonathan Lewis, chief investment officer at Samson Capital Advisors, cautioned against reading too much into a single day of economic reports. That's been a familiar refrain among market watchers this year, as practically every sign that the economy is improving seems to be met with another that says it's stagnating.

"It's nice to see that consumer confidence came in well over expectations, but of course they also revised down last month's," Lewis said. "Of course it's nice to see home prices up ... but the sharp rise in rates means mortgage rates are rising higher."

In recent weeks, the market has been driven not so much by economic fundamentals, but by speculation about when the Federal Reserve might raise interest rates or pull back on a bond-buying program that is meant to stimulate the economy. Stocks plunged Wednesday after Fed Chairman Ben Bernanke said the Fed could rein in its bond-buying program this year. Though in some ways that is good news — after all, it means the Fed thinks the economy is improving — investors have largely treated the idea of a Fed pullback as bad news, worrying how the market will fare without the central bank propping it up.

Starting Wednesday, the Dow plunged by triple digits for three out of four days. The fact that the second quarter ends this Friday will probably add to the volatility: Money managers need to book profits for their clients before then.

Lewis said he thought that the market's Tuesday morning gain was partly due to investors stepping back and taking a more reasoned, less reactive view of the Fed's potential pullback plan. For example, the Fed wants the Fed wants the jobless rate to be at 6.5 percent before it starts raising short-term interest rates. Last month, it was 7.6 percent.

"This is the day," Lewis said, "where the dust appears to be settling."

The stronger economic news released Tuesday led investors to sell U.S. government debt, sending bond yields higher. The yield on the 10-year Treasury note, a benchmark for many kinds of loans, rose to 2.59 percent from 2.54 percent late Monday. Investors have also been selling bonds in anticipation of the Fed winding down its stimulus program.

Despite the gains in U.S. stocks and the rise in U.S. bond yields, there were ample reminders of economic uncertainty around the world. Stocks continued to fall in China, where investors are fretting that the government's new efforts to curb unregulated lending will hurt companies and choke already-slowing economic growth.

In debt-riddled Greece, new cabinet members met for the first time after a hasty reshuffling of top government posts that the prime minister was forced to agree to after his contentious order to close the state broadcaster, a move meant to save money. And the head of Germany's central bank, Jens Weidmann, called for a "strict and thorough" review of the finances of European banks, even as the head of the European Central Bank, Mario Draghi, defended an ECB stimulus program that German leaders have criticized.

In other trading, the Nasdaq composite index was up 17 points, or 0.5 percent, to 3,335.

Commodities prices were mixed. Gold fell $2.30 to $1,274 an ounce and the price of crude oil rose 40 cents to $95.57 a barrel.

Among stocks making big moves:

—Walgreen, the nation's largest drugstore chain, slipped after reporting earnings and revenue that missed analysts' expectations — a result, the company said, of lower-than-expected sales outside the pharmacy. Walgreen fell $3.85, or 8 percent, to $44.20.

—Barnes & Noble dipped after reporting that its loss more than doubled in the latest quarter. The bookseller has struggled to compete with online retailers and discounters, and its Nook e-book continues to lose money. The stock fell $3, or 16 percent, to $15.82.

—Clothing chain Men's Wearhouse rose after saying it had fired executive chairman George Zimmer, the company's founder and star of its TV commercials, because he had advocated for "significant changes that would enable him to regain control." The stock rose $1.90, or 5.4 percent, to $37.03.

 

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