- The Washington Times - Friday, July 24, 2009

Encouraging news on home sales and better-than-expected earnings poured more rocket fuel on Wall Street’s nine-day, 11 percent rally Thursday, sending the Dow Jones Industrial Average nearly 188 points higher to close at its high for the year.

The rally began early in the day after investors learned that home resales increased for the third month in a row in June.

Several companies reported eye-popping second-quarter earnings even though the economy has been mired in a recession since December 2007.

Ford Motor Co. earned a $2.3 billion second-quarter profit, while drug giants Bristol-Myers Squibb Co. and Wyeth both reported double-digit profit gains for the April-June period. Hershey, the nation’s second-largest candymaker, rang up a 72 percent profit increase last quarter.

The Dow industrials gained 188.03 points, or 2.1 percent, to close at 9,069.29, topping its Jan. 2 high by 35 points. The broader Standard & Poor’s 500 Index jumped 22.22 points, or 2.3 percent, to finish the day at 976.29. The tech-heavy Nasdaq Composite Index increased 47.22 points, or 2.5 percent, and closed at 1,973.60. Both the S&P; 500 and the Nasdaq also reached their highs for 2009.

“The numbers are good, but the bar has been set pretty low,” said Brian Lipps, a Charles Schwab & Co. branch manager. “Companies have done a good job managing expenses, which is why you see some of this unemployment. But for a sustained rally, there’s going to have to be top-line revenue growth.”

The Dow has now gained 40.8 percent since reaching a 12-year low of 6,440.08 on March 9. The S&P; 500 is up 46.4 percent since it plunged to 666.79 in intraday trading on March 6. The Nasdaq has soared 55.9 percent since its March 9 low of 1265.62.

Low mortgage rates, distressed sales from foreclosures and a new $8,000 federal tax credit for first-time homebuyers contributed to the increase in home resales in June.

Existing-home sales climbed 3.6 percent last month after rising by 1.3 percent in May and 2.4 percent in April, the National Association of Realtors reported Thursday. It marked first time since the housing boom of 2004 that home resales increased three straight months.

The national median sales price in June was $181,800, a figure 15.4 percent below its year-earlier level of $215,000.

Home resales reached an annual rate of 4.89 million in June, when the 30-year fixed-rate mortgage averaged 5.42 percent, which was nearly one percentage point below the June 2008 rate, the NAR said. Freddie Mac reported Thursday that 30-year fixed mortgages, which bottomed out at 4.78 percent in early April, averaged 5.2 percent for the week ending July 23.

“This is the strongest pace of sales since last October and is a breakout from a tight range that has held for months,” said Adam York, an economist at Wells Fargo Securities. “Sales of existing homes have likely bottomed for this cycle and are now up 8.9 percent from their lowest level in January.”

Foreclosures and otherwise distressed properties accounted for 31 percent of June sales, the NAR reported. “This share stood near 50 percent earlier in the year, implying that the rise in total existing-home sales has been more than accounted for by greater traditional sales,” noted Aaron Smith of Moody’s Economy.com.

“The market for existing homes may be turning around, but it is too soon to make this call,” said Patrick Newport, U.S. economist at IHS Global Insight. “The economy is still losing jobs; credit is still tight; mortgage rates are a bit higher than they were in the second quarter; and the tax credit for first-time homebuyers, which is boosting sales, expires at the end of November.”

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