- The Washington Times - Friday, June 26, 2009

NEW YORK | Investors rushed back into stocks as profits at a handful of companies indicated the economy might be gaining strength.

Gains in homebuilders, retailers and other consumer discretionary stocks led the market sharply higher Thursday. The Dow Jones Industrial Average surged 173 points after four days of losses. Government bond prices jumped after an auction drew strong demand.

Traders focused on several better-than-expected earnings reports and welcomed news that the Federal Reserve took the first step toward removing the numerous emergency lending programs it launched last fall at the height of the financial crisis.

The third successful Treasury auction of the week helped boost confidence that Washington will be able to raise enough money to fund its economic recovery programs.

Shares of homebuilders rallied after Lennar Corp. said orders for new homes jumped 63 percent during the second quarter and posted revenue that beat expectations.

Retailers and other consumer discretionary stocks jumped following an upbeat report from Bed Bath & Beyond Inc. The home furnishings store said its fiscal first-quarter profit climbed 14 percent as sales rose after the liquidation of rival Linens ‘N Things.

Stocks had started lower after the government said new claims for unemployment benefits rose by 15,000 to 627,000 last week. The market expected a drop.

The Dow rose 172.54, or 2.1 percent, to 8,472.40, after falling 40 points in the early going. The broader Standard & Poor’s 500 Index rose 19.32, or 2.1 percent, to 920.26, and the Nasdaq Composite Index rose 37.20, or 2.1 percent, to 1,829.54.

Uncertainty about when the economy will turn around and how much it might eventually grow, have made for a rocky market this month. The Dow remains up 29.4 percent from its 12-year low hit March 9, but is down nearly 330 points, or 3.7 percent, from the five-month high it reached June 12.

Analysts say traders need to see more concrete evidence of growth before restarting the market’s rally. “People are hesitant to take a position one way or the other,” said Doug Roberts, chief investment strategist at Channel Capital Research.

The market is expected to remain volatile throughout the summer, which is typically marked by light volume that can skew movements in the market.

Traders were relieved to see the announcement that the Fed will allow a program for supporting money market mutual funds to lapse by the end of October. The central bank’s decision, along with reductions in the amount it will lend to banks under two others, is a sign the financial system is stabilizing. The Fed is extending five other programs.

Government bond prices jumped after the auction for $27 billion in seven-year notes drew strong demand.

The yield on the benchmark 10-year Treasury note, which moves opposite its price, tumbled to 3.53 percent from 3.69 percent late Wednesday.

Investors also got good news in a slightly improved reading on gross domestic product. First-quarter gross domestic product shrank 5.5 percent, the Commerce Department said, less than the estimate of 5.7 percent.

Crude oil rose $1.56 to settle at $70.23 a barrel on the New York Mercantile Exchange.

The dollar was mixed against other major currencies. Gold prices rose.

In other trading, the Russell 2000 Index of smaller companies rose 14.23, or 2.9 percent, to 509.18.

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