Good News Gives Dow 3rd Straight Triple Digit Gain
July 26, 2010 - 4:04 PMThe Dow Jones industrial average gained more than 100 points for the third straight day Monday after investors got some unexpected good news about the economy.
A report on the housing market came in better than expected. And shipping giant FedEx Corp. released a forecast that was more upbeat than the prediction it made just six weeks ago.
The news pulled stocks up from an early slow start and sent the Dow up 100 points by the close for a three-day gain of 405. Investors who a week ago were selling on a pessimistic view of earnings and the economy are now buying on the belief that the economic recovery, while slow, is proceeding.
Trading volume was light, a sign that investors might be a little cautious despite the advance. Many are likely waiting for hundreds of earnings reports to be released this week before they make any major investing decisions.
But FedEx gave investors reason to buy when it said its overnight and ground delivery businesses are doing better than expected, and that it expects a moderate global economic recovery. That was heartening news for investors because the shipping giant, which carries packages for businesses and consumers, is considered a barometer for how the economy is doing.
The shipping company raised its earnings forecast for the three months that will end Aug. 31. It said it expects to earn between $1.05 and $1.25 per share, up from its previous estimate of 85 cents to $1.05 per share.
Six weeks ago, investors were disappointed by FedEx's forecast.
"FedEx tells you a lot about overall manufacturing in the country," said Russ Koesterich a managing director at the money manager BlackRock Inc. "The positive release tells investors the recovery is bumpy but is still on pace."
Shortly after trading began, the Commerce Department said new home sales rebounded from a record low in May to an annual rate of 330,000 units, more than economists expected. The gain came after sales hit a record low annual rate of 267,000 in May. The report showed that the housing market might be weathering the severe slump that began with the expiration of a homebuyer's tax credit at the end of April.
Sales are still down 72 percent from their peak annual rate of 1.39 million in July 2005. Last year, sales plunged to a rate of 375,000 last year. So June's number was still weak, but investors were relieved that it wasn't worse.
"It tells investors that the housing market is not melting down again," Koesterich said. "One of the big fears is that as government stimulus is taken away there is going to be another housing meltdown - that doesn't appear to the case."
Homebuilders stocks rose on the news. D.R. Horton Inc., Lennar Corp. and Toll Bros. Inc. rose more than 2 percent after the report.
Stocks have rallied in recent days as more companies reported strong second-quarter earnings and revenue and raised their outlooks for the coming quarters.
"There's been too much negativism priced in and we're coming off that," said Brian Gendreau, market strategist at Financial Network Investment Corp. "Earnings reports are definitely helping."
The Dow rose 100.81, or 1 percent, to 10,525.43. The Standard & Poor's 500 index rose 12.35, or 1.1 percent, to 1,115.01, while the Nasdaq composite index rose 26.96, or 1.2 percent, to 2,296.43.
About four stocks rose for every one that fell on the New York Stock Exchange, where volume came to 1 billion shares.
Bond prices were narrowly mixed. The yield on the 10-year note, which moves opposite its price, was unchanged at 3.00 percent compared with late Friday. That yield helps set interest rates on mortgages and other consumer loans.
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