Stocks ended sharply higher with the major indexes scoring weekly gains of more than 2%, after an unexpected rise in new home sales jump-started thinking that the worst of the sub-prime mess could be over and a recession avoided. The Dow surged ore than 140 points, as investors welcomed a pair of stronger-than-expected readings on the economy.
Today, the Dow Jones industrial average closed up 142.99 or 1.08% to 13,378.87, the broader S&P 500 closed up 16.87 or 1.15% to 1,479.37, and the tech-fueled Nasdaq Composite closed up 34.99 or 1.38% to 2,576.69. For the week, the Dow and S&P 500 both gained around 2.3%, while the Nasdaq gained almost 2.9%.
Market breadth was positive. On the New York Stock Exchange, winners beat losers by more than 3 to 1 on volume of 1.18 billion shares. On the Nasdaq, advancers beat decliners 2 to 1 on volume of 1.66 billion shares.
Stocks have had a good week, following a rough period on Wall Street in which investors had bailed out of equities on worries about the sub-prime mortgage market and the credit crunch. Dour comments by the CEO of Countrywide Financial revived investor worries about these factors, but better economic reports were a soothing factor. Investors have also hoped that Federal Reserve will cut the fed funds rate at its Sept. 18 policy meeting. The bets were raised after the central bank cut its discount rate.
In economic news, a report stating that July new home sales rose 2.8% to an 870,000 annual sales pace, beat forecasts for a drop to 825,000. In addition, the reading on June new home sales was revised upward. This was encouraging to investors who have been worried about how the implosion in that market would impact the economy. However, going ahead, home sales are likely to fall further because of the credit crunch. Additionally, July durable goods orders jumped 5.9%, easily topping economists’ forecasts for a rise of 1.4%.
Shares of Home Depot closed up $0.66 or 2% to $34.68, even though reports that a sale of its wholesale supply division remains in question, due to the reluctance on the part of investment banks, even amid a lower price.
Shares of AnnTaylor Stores Corp. declined on reporting a 27% fall in second-quarter profit, hurt by steep markdowns and fashion fumbles. However, the board authorized a new $300 million share buyback plan. Its net income in the quarter fell to $31.7 million, from $43.2 million in the year-ago period. Net sales fell about 1% to $614.5 million, while same-store sales fell 6.2%.
Stock of gap closed up $1.11 or 5% to $18.51, after reporting quarterly earnings that topped estimates, on revenue that missed estimates. It posted a 19% increase in net income to $152 million, compared with $128 million a year ago. Sales for the period fell 1% to $3.69 billion, compared with $3.71 billion for the same period a year ago.
U.S. light crude oil for October delivery rose $1.26 to settle at $71.09 a barrel on the New York Mercantile Exchange.
All the best,
Manuel Jesus-Backus
The Portfolio Crafter
Stock picks by each of the traders on the latest episode of “Fast Money.” (Fast Money Recaps at Online Traders’ Forum)
