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Better-than-expected housing data overshadowed a dismal labor market report to push the benchmarks higher yesterday. Positive earnings surprises from certain corporate houses also contributed to the rally as did lingering optimism from the previous day stemming from the central bank’s stance that it would ‘not hesitate’ to implement policies to bolster the economy. The Dow notched up its third-straight day of gains while the S&P 500 is close to the 1, 400 mark. In summary, benchmarks seem to be enroute to end the week on a winning note.
On a day when all three of the benchmarks almost returned to their key levels, the Dow Jones Industrial Average (DJI) gained 0.9% to close the session at 13,204.62. The Standard & Poor 500 (S&P 500) was up 0.7% and settled at 1,399.98, a negligible 0.02 points shy of its key level. The tech-laden Nasdaq Composite Index climbed 0.7% to finish yesterday’s trading session at 3,050.61. Consolidated volumes on the New York Stock Exchange, the Nasdaq and the American Stock Exchange were 6.7 billion shares, just lower than this year’s daily average of 6.77 billion. For two stocks that moved up on the NYSE, a single stock dropped into the red zone.
There were a few concerns for the investors both from the European and the domestic front, but yesterday they chose to focus only on the positives. Coming to the concerns, the economic sentiment indicator released by the European Commission for the month of April brought disappointing news. Economic sentiment dropped from 94.5 in March to 92.8 in April, wider than expectations of a marginal drop to 94.2. The report reminded of lingering European financial concerns and also acted as a drag on European markets.
Luckily, neither did cross-Atlantic concerns spill over to the US markets, nor did dismal employment data dampen investor sentiment. The U.S. Department of Labor reported the advance figure for seasonally adjusted initial claims had decreased by 1,000 during the week ending April 21, down from previous week's revised figure of 389,000. However, a 1, 000 drop is too meager and consensus estimates had predicted that unemployment benefits claims would drop to 375, 000. Additionally, the 4-week moving average jumped 6,250 from the previous week's revised average of 375,500 to 381,750.
However, all these negatives were largely overshadowed by an uptrend in pending home sales in March, which also signaled the recovery of the housing market. According to The National Association of Realtors, the Pending Home Sales Index increased 4.1% in March to 101.4, up from an upwardly revised 97.4 in February. The figure is also 12.8% higher than year-ago levels. The 4.1% jump easily topped consensus estimates of a 1.5% rise and the index clocked its best level since April 2010. Lawrence Yun, chief economist of NAR said: “First quarter sales closings were the highest first quarter sales in five years. The latest contract signing activity suggests the second quarter will be equally good…The housing market has clearly turned the corner. Rising sales are bringing down inventory and creating much more balanced conditions around the county, which means home prices will be rising in more areas as the year progresses”.
Following the report, the housing sector clocked up gains and also contributed towards the broader rally. PHLX Housing Sector (HGX) soared 3.0% and Lennar Corp. (NYSE:LEN), KB Home (NYSE:KBH), PulteGroup, Inc. (NYSE:PHM), Toll Brothers Inc. (NYSE:TOL), DR Horton Inc. (NYSE:DHI) and Beazer Homes USA Inc. (NYSE:BZH) jumped 5.7%, 2.8%, 10.1%, 3.9%, 2.7% and 9.2%, respectively.
Strong earnings from the likes of Lockheed Martin Corporation (NYSE:LMT), Monster Worldwide, Inc. (NYSE:MWW) and Skechers USA Inc. (NYSE:SKX) helped the broader sentiment and these shares jumped 0.8%, 9.7% and 13.7%, respectively. Earnings so far have been mostly positive and Thomson Reuters data has confirmed that 72% of the 254 companies, who have reported earnings so far have surpassed the Street’s estimates. However, results from Exxon Mobil Corporation (NYSE:XOM), United Parcel Service, Inc. (NYSE:UPS) and Aetna Inc. (NYSE:AET) were a bit of a drag and these shares lost 0.9%, 1.8% and 8.2%, respectively.
Wednesday’s positive mood was also due to comments made by Federal Reserve Chairman Ben Bernanke the day before. After a meeting with Federal Open Market Committee in Washington, Ben Bernanke had said: “We remain prepared to do more as needed to make sure that this recovery continues and that inflation stays close to target”. Investors grew hopeful about a third-round of bond purchases and Bernanke fuelled optimism as he said: "Those tools remain very much on the table and we will not hesitate to use them should the economy require that additional support".