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Positive comments from the Chairman of the Federal Reserve Ben Bernanke coupled with robust results from housing majors and encouraging domestic data lifted investor sentiment. All major indices recovered from Monday’s heavy losses and finished in the green. Housing stocks gained on strong home sales data. All the top ten S&P 500 industry groups chalked up gains, with materials stocks leading the pack.

The Dow Jones Industrial Average (DJI) gained 0.8% to close the day at 13,900.13. The S&P 500 increased 0.6% to finish yesterday’s trading session at 1,496.94. The tech-laden Nasdaq Composite Index rose 0.4% to end at 3,129.65. The fear-gauge CBOE Volatility Index (VIX) dropped 11.2% to settle at 16.87. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 7.08 billion shares, well above the daily average of 6.48 billion shares. Advancing stocks outnumbered the declining stocks. For the 63% that advanced, 34% declined.

Benchmarks recovered from the losses suffered following political instability after the Italian elections. A “gridlock” in the elections could revive debt woes for the country and the euro zone. But encouraging comments from Fed Chairman Ben Bernanke boosted investor sentiment. Bernanke said he was in favor of continuing the $85-billion bond buying program to keep interest rates at near-zero levels. He said the bond buying programme has helped to boost the economy. It has resulted in higher employment, improved spending, wealth creation and greater demand for durable goods.

But his counterparts in the Fed along with some critics opposed his views and said continuing this program could result in greater risks for the economy in the long run. The risks include inflation and financial instability.  Providing reassurances, Bernanke said the Fed would not make any major changes in the “easy-money policies” and that it will be implemented “as long as needed”.

According to the U.S. Census Bureau and Department of Housing and Urban Development, sales of single family houses for the month of January surged 15.6% to 437,000 versus a consensus estimate of 383,000. This figure is well above the previous month’s figure of 378,000. On a year over year basis, sales of single family houses increased 28.9%. Meanwhile, the S&P Dow Jones Indices released the latest readings for the S&P/Case-Shiller Home Price Indices, according to which the 10-City Composite and 20-City Composite both inched up 0.2%.

Shares of the largest home improvement retail chain The Home Depot, Inc. (NYSE:HD) surged almost 5.7% after earnings and revenues beat the Street’s estimates. Earnings of the company increased 17% while revenue surged 14% year over year. One extra week of sales boosted the company’s revenue. Home Depot also increased its dividend by 34%. The company added that it will buy back $17 billion worth of shares.

Following strong home sales data, housing stocks increased almost 3%. Stocks such as Lumber Liquidators Holdings Inc (NYSE:LL), M.D.C. Holdings, Inc. (NYSE:MDC), The Ryland Group, Inc. (NYSE:RYL) and D.R. Horton, Inc. (NYSE:DHI) increased 5.5%, 4.2%, 4.0% and 4.0%, respectively.

The Consumer Confidence Index improved in February. The index stood at 69.6 versus the consensus estimate of 61.3. The index stood at 58.4 in January. The Present Situation Index improved to 63.3 versus 56.2 in the previous month. The Expectations Index also increased to 73.8 from 59.9.

Materials were the biggest gainer among the top ten industry groups in the S&P 500. The Materials Select Sector SPDR (XLB) increased 1.0%. The Dow Chemical Company (NYSE:DOW), Monsanto Company (NYSE:MON), Eastman Chemical Company (NYSE:EMN), Celanese Corporation (NYSE:CE) and E I Du Pont De Nemours And Co (NYSE:DD) gained 0.8%, 1.1%, 0.8%, 0.4% and 1.2%, respectively.

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