Better housing data and a drop in four-week moving average of initial claims joined hands to guide the benchmarks higher yesterday, providing investors another hope that S&P 500 might just end 2011 on a positive note. With yesterday’s gains, the Dow washed out the losses it suffered on Wednesday and sits comfortably in the green for the year.
The Dow Jones Industrial Average (DJIA) jumped 1.1% to settle at 12,287.04. The Standard & Poor 500 inched up 1.1% and finished yesterday’s trading at 1,263.02. The Nasdaq Composite Index closed at 2,613.74, moving up by 0.9%. Reflecting subdued fears in the markets, the fear-gauge CBOE Volatility Index dropped 3.7% and settled at 22.65. While investors stay busy in the festive mood, the Street yet again posted low volumes. Consolidated volumes on the New York Stock Exchange, NYSE Amex and the Nasdaq, were roughly 4.16 billion shares, sharply lower than the year's daily average of almost 7.9 billion shares. For every four stocks that moved up on NYSE, one stock dropped down.
With just a session left for this year, S&P 500 would want to avoid a fall on Friday and sign off with yearly gains. The Dow is well placed and it is almost certain that it will maintain its green seat. Investors will keep their eyes on Friday’s developments, the last trading session of 2011, and pray that S&P 500 partners Dow in the positive zone, rather than end up on the losing side where Nasdaq is still lurching. For the year so far, the Dow and S&P 500 are up 6.1% and 0.4%, respectively, while the Nasdaq is still down 1.5%.
For the past few sessions, movements in S&P 500 have become volatile. Last week, spurred by encouraging economic reports, the S&P 500 moved up to the positive territory for the year. However, this Wednesday, cross-Atlantic apprehensions and disappointing domestic economic data dragged the index into the red zone. Yesterday, the index is once again back into the green for the year, thanks to another round of economic data.
The housing sector has been in the limelight of late with a series of data that it had to provide. Fortunately, most of the reports it had to share came in positively, except the home sales data from the National Association Realtors (NAR) and the revised home sale counts of 2007 were a disappointment to investors last week.
Yesterday, NAR came in with positive data and reported that with gains in November, pending home sales reached the highest level in 19 months. According to NAR, The Pending Home Sales Index jumped 7.3% to move up to 100.1 in November. It was up from upwardly revised October levels of 93.3. As against the 7.3% increase, the consensus estimates had projected a mere 2% increase. Lawrence Yun, NAR chief economist, said: “Housing affordability conditions are at a record high and there is a pent-up demand from buyers who’ve been on the sidelines, but contract failures have been running unusually high. Some of the increase in pending home sales appears to be from buyers recommitting after an initial contract ran into problems, often with the mortgage,”
Thus, the better-than-expected data ensured the investors’ cheer and also led to broader gains. Housing stocks including Lennar Corp. (NYSE:LEN), KB Home (NYSE:KBH), PulteGroup, Inc. (NYSE:PHM), DR Horton Inc. (NYSE:DHI), Toll Brothers Inc. (NYSE:TOL) and Beazer Homes USA Inc. (NYSE:BZH) gained 4.6%, 6.2%, 6.1%, 4.4%, 3.9% and 7.0%, respectively.
Separately, jobs market, another key player in the economy, has been bringing a lot of cheer to the investors in recent times. The U.S. Department of labor reported an increase of initial claims, but it still remained well below the unpopular 400, 000 level and the 4-week moving average showed a declining trend, reflecting on an upbeat hiring trend. According to the data the advance figure for seasonally adjusted initial claims increased 15,000 to 381,000, from previous week's revised figure of 366,000. However, the 4-week moving average declined 5,750 from last week’s revised average to 375,000.
Additionally, the Chicago PMI, a regional indicator of the economic health of the manufacturing sector in Illinois, Indiana and Michigan, reported positive trend as it came in better-than-expected. The index read figures of 62.5, higher than consensus estimates of 61. To be noted, a reading above 50 represents expansion of the manufacturing sector, compared to the previous month.