Stocks Edge Higher on News of Rise in Pending Home Sales
February 2, 2010Better news from the housing industry sent stocks higher Tuesday, including an increase in the number of people with contracts to buy homes.
The Dow Jones industrial average rose 120 points as optimism grew about an economic recovery.
The National Association of Realtors, a trade group, said its index of sale contracts rose 1 percent in December. It was the ninth improvement over the past 10 months as buyers scrambled to take advantage of a first-time homebuyer tax credit before it was set to expire last November.
"It's a slow, sustainable growth," said Daniel Penrod, senior industry analyst for the California Credit Union League. "Most people would prefer a quick rebound but that's not likely to happen."
The home sales report was the latest bit of encouraging news on the economy. Stocks rose on Monday after a surprisingly strong reading on the manufacturing sector, and on Friday the government reported that the U.S. economy grew at an annual rate of 5.7 percent in the final three months of 2009, a faster pace than expected.
Homebuilder stocks rose sharply after D.R. Horton Inc. posted its first profit since 2007 during its fiscal first quarter. Much of its $192 million profit during the October-December period came from a tax gain, but its revenue rose because of a 36 percent jump in home sales. Orders increased 45 percent.
The reports brought a positive tone to the market, which stumbled in late January as concerns arose that the recovery might be stalling and that the market's 10-month advance was running out of gas. The Standard & Poor's 500 index fell 3.7 percent in January, its worst month since hitting a 12-year low nearly a year ago.
In late afternoon trading, the Dow rose 120.09, or 1.2 percent, to 10,305.62. The S&P 500 index rose 14.91, or 1.4 percent, to 1,104.09, while Nasdaq composite index advanced 20.62, or 1 percent, to 2,191.82.
Bond prices inched higher. The yield on the benchmark 10-year Treasury note, which moves opposite its price, dipped to 3.64 percent from 3.66 percent late Monday.
Investors are turning their attention to a series of economic reports this week to see if the growth of late last year has a good chance of continuing. The most important indicator will come on Friday when the Labor Department releases its January employment report.
Confidence also grew after Treasury Secretary Tim Geithner told the Senate Finance Committee that the economy is in better shape than a year ago but that the government still needs to take steps to bring down unemployment, which stands at 10 percent.
The market's two-day climb is helping stocks recover from its mid-January slide.
Michael Cannivet, portfolio manager and senior analyst at Palo Capital Inc. in Newport Beach, Calif., said the market's recent drop had drawn in people who are looking to buy on dips.
"We think there is so much buying power on the sidelines that that is what's keeping the market from a full correction," Cannivet said, referring to a drop of at least 10 percent. Before the advance this week, the S&P 500 index was down 6.6 percent from its recent peak on Jan. 19.
Among home builders, D.R. Horton jumped $1.37, or 11.5 percent, to $13.28 after posting a profit for the first time since 2007. Toll Brothers Inc. rose $1.08, or 5.8 percent, to $19.70, while Pulte Homes Inc. rose 74 cents, or 7 percent, to $11.30.
Ann Taylor Stores Corp. rose $2.43, or 18.2 percent, to $15.82 after saying its fourth-quarter earnings would top expectations on stronger sales and profit margins.
Lexmark International Inc. said lower costs helped increase its fourth-quarter earnings. The printer and copier maker rose $3.19, or 11.9 percent, to $29.99.
Neil Massa, senior trader at MFC Global Investment Management, said the market's gains have come as trading volume remains light, a signal that there is only modest conviction behind the latest advance.
"I'm just hesitant to think we've turned a corner," he said. Massa expects the market will trade in a tight range as Friday's jobs report approaches.
Crude oil rose $2.37 to $76.80 per barrel on the New York Mercantile Exchange. Gold rose.
Three stocks rose for every one that fell on the New York Stock Exchange, where volume came to 803.4 million shares compared with 711.2 million shares traded at the same point Monday.
The Russell 2000 index of smaller companies rose 5.59, or 0.9 percent, to 614.84.
Britain's FTSE 100 rose 0.7 percent, Germany's DAX index gained 1 percent, and France's CAC-40 rose 1.3 percent. Japan's Nikkei stock average rose 1.6 percent.
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