Upbeat news extends rally
A flurry of upbeat news lifted stocks Monday, giving Wall Street its first broad, back-to-back gains in almost a month and raising more hopes that the worst could be over for shellshocked investors.
An unexpected rise in February home sales was a major driver of the rally, which saw the Dow Jones industrial average jump 187.32 points, or 1.5%, to 12,548.64.
Investors also reacted positively to news that JPMorgan Chase raised its takeover bid for brokerage Bear Stearns, and to a report that the Federal Home Loan Bank system would boost purchases of mortgage-backed bonds.
The improved mood on Wall Street convinced some analysts that stocks were emerging from a six-month funk brought on by the housing market’s slump and a related credit crunch.
Although the Dow pared its gains after being up as much as 261 points at midday, the rally added to the blue-chip index’s net rise of 3.4% last week -- and put it on a pace for its first winning month since October.
“I think we turned the corner last week,” said John Bollinger, head of Bollinger Capital Management in Manhattan Beach. “We’ve gone from an environment where any bad news was widely featured and any good news completely ignored to an environment in which bad news is being played down a bit and good news is being played up a bit.”
Monday’s advance was broad-based. Winners outnumbered losers by 4 to 1 on the New York Stock Exchange.
The Standard & Poor’s 500 index rose 20.37 points, or 1.5%, to 1,349.88. Combined with Thursday’s 2.4% gain, the S&P; 500 notched its first two-day winning streak since Feb. 25-26. (Markets were closed for Good Friday.)
The technology-heavy Nasdaq composite jumped 3% on Monday, adding 68.64 points to 2,326.75. Apple helped pace the advance, climbing $6.26, or 4.7%, to $139.53, its highest closing price since Jan. 22.
Meanwhile, Treasury bond yields rose as investors sold fixed-income securities to buy stocks. The 10-year T-note yield jumped to 3.56% from 3.33% on Thursday.
Strong gains by tech shares and so-called consumer discretionary stocks such as retailers and restaurant chains indicated that some investors were looking ahead to a rebound in the economy, said Jeffrey Kleintop, chief market strategist at LPL Financial Services.
“The behavior of the markets over the course of the last week has signaled a decisive shift in how it looks at the economy, inflation, commodities and the dollar,” Kleintop said.
Commodities, which zoomed in recent months and fueled inflation worries, have pulled back from their peaks. Near-term oil futures slid 98 cents to $100.86 a barrel Monday, the fourth drop in five sessions.
Meanwhile, the battered dollar has firmed in the last week. The dollar was worth 101.01 yen Monday, up from 99.60 at the end of last week.
Although the economy may be in recession and some analysts worry that first-quarter corporate earnings will be disappointing, “The market doesn’t wait for the economy to pick back up again to begin rallying,” Kleintop said.
Investors are encouraged by the government’s recent moves to try to bolster the financial system, analysts say.
The Dow and other major indexes hit multiyear lows March 10 as worries mounted about major financial firms cutting off credit to one another because of solvency concerns.
Bear Stearns was caught in that crunch, and over the weekend of March 15-16 the firm agreed to a Federal Reserve-backed rescue by JPMorgan.
That move has cemented Wall Street’s belief that the Fed has pulled out all the stops to avert financial calamity.
JPMorgan on Monday sought to assure its deal for Bear Stearns would be approved by the brokerage’s shareholders, many of whom objected to the initial $2-a-share offer as too low. The offer was raised to $10 a share.
Bear Stearns shares surged $5.29 to $11.25. JPMorgan added 58 cents to $46.55.
Easing concerns about the financial system have encouraged more investors to look for a bottom in the stock market.
That has been especially apparent with housing stocks: A Bloomberg News index of home builders’ shares has jumped 14% in the last four trading sessions, although it’s still down 33% from the 52-week high it reached in May.
The stocks rocketed again Monday, after the National Assn. of Realtors said sales of existing homes rose 2.9% in February from January. The increase caught economists by surprise.
Among builders’ shares, KB Home surged $2.19, or 8.7%, to $27.45, extending its year-to-date gain to about 27%. Ryland Group gained $1.60, or 4.9%, to $34.43 and is up 25% this year.
It wasn’t all good news on the housing front. Mortgage finance giant Fannie Mae fell $3.14, or 9.2%, to $31.16 after the company said “seriously delinquent” loans in its portfolio rose to 1.06% of the total in January from 0.98% in December.
Some analysts cautioned that there might still be more housing-related land mines waiting to go off.
Although the S&P; 500 index is up 6% since March 10, “I think this is just a bear market rally,” said Peter Boockvar, equity strategist at New York brokerage Miller Tabak & Co. Rallies in bear markets often are powerful, but they are short-lived and don’t stop an overall downward market trend.
The issues dogging the housing market, credit markets and the economy “are going to last for a while,” Boockvar said. “They’re not going to just get cleaned up and go away.”
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