Market Snapshot

Stocks Advance on Housing, Consumer News


U.S. stocks closed higher Tuesday, led by gains in homebuilding, financial and consumer service issues. Lifting the market were better-than-expected reports on housing and consumer confidence.

News that President Barack Obama will nominate Ben Bernanke to a second term as Federal Reserve chairman ended uncertainty about who will lead the central bank as the economy rebounds.

On Tuesday, the 30-stock Dow Jones industrial average finished higher by 30.01 points, or 0.32%, at 9,539.29. The broad Standard & Poor's 500-stock index was up 2.43 points, or 0.24%, at 1,028.00. The tech-heavy Nasdaq composite index gained 6.25 points, or 0.31%, to 2,024.23.

Treasuries were higher after a successful $42 billion two-year note auction Tuesday. Gold futures were up as the dollar fell. Oil futures were lower.

The market awaited reports Wednesday on new home sales and durable goods orders for July.

In company news Tuesday, home improvement retailer Lowe's Companies (LOW) announced a joint venture with Woolworths of Australia.

Citigroup (C) reportedly accelerated its efforts to modify mortgages on its books.

Shares of Burger King (BKC) rose after the company reported a 16% gain in net profits.

Shares of automakers slipped as the "cash-for-clunkers" program came to an end.

The U.S. mid-session budget review released Tuesday showed the expected reduction in the fiscal 2009 budget deficit, but a steep increase in the cumulative deficit out ten years. The current red ink amount for the year is now estimated at $1.58 trillion, as was leaked last week. And also as indicated by press reports, the cumulative deficit is projected at $9.05 trillion through fiscal 2019. One significant revision to the economic assumptions is an increase in the unemployment rate to 10% by the end of the year, while averaging 9.3% for 2009. Previously the administration saw a peak at 9.4% later this year. GDP growth is predicted at 2.0% for 2010. The CPI is expected to contract 0.7% this year.

Meanwhile, the Congressional Budget Office projects a $1.6 trillion deficit this fiscal year, and a $1.4 trillion short fall in fiscal 2010. The cumulative 10 year budget deficit is estimated at $7.1 trillion . The economy is expected to grow at a 2.8% pace next year, and 3.8% in 2011. The unemployment rate is projected to average 10.2% next year.

Obama's decision to renominate Bernanke shows that the President has opted for continuity in U.S. economic policy despite criticism in Congress of the low-key central banker's frantic efforts to rescue the financial system, according to press reports. Bernanke is seen by supporters inside the administration and in markets as a creative and steady hand who helped to keep the financial chaos, which became especially dangerous in the past year, from becoming much worse.

Former Fed Chairman Paul Volcker said money-market mutual funds undermine the strength of the U.S. financial system and should be regulated more like banks, according to a Bloomberg News report. "Banks remain the functioning heart of the financial system, and they are protected and regulated," Volcker said. "To the extent they have competitors that have different ground rules, kind of free-riders in my view, weakens the financial system." Manhattan Chief U.S. District Judge Loretta Preska ruled the Federal Reserve must for the first time identify the companies in its emergency lending programs after a Freedom of Information Act lawsuit, according to a Bloomberg News report. Preska rejected the Fed's argument that loan records aren't covered by the law because their disclosure would harm borrowers' competitive positions. The Fed has refused to name the financial firms it lent to or disclose the amounts or the assets put up as collateral under 11 programs, most put in place during the deepest financial crisis since the Great Depression, saying that doing so might set off a run by depositors and unsettle shareholders.

In economic news Tuesday, U.S. consumer confidence rose to 54.1 from 47.4 (was 46.6) in July, as the measure resumed its climb from the 25.3 all-time low in February, though it has yet to reclaimed the 54.8 reading seen in May. The confidence index is now back above the trough-reading from before this cycle of 47.3 in February of 1992, as well as the pre-1992 record-low of 50.1 in May of 1980. Though the various confidence measures are continuing to claw their way higher, they remain at remarkably low levels for the early months of a recovery. The August confidence rise was led by the expectations component, which rose to 73.5 from 63.4 (was 62.0) in July, leaving the measure further above the 27.3 all-time low in February, but below the 71.5 recent-peak in May. The present conditions component rose to 24.9 in August from 23.3 (was 23.4) in July, leaving the measure further above the cycle-low reading of 21.9 in March. The all-time low for this measure was 17.5 in February of 1983. The 1-year ahead inflation reading ticked-down to 5.4% in August from 5.5% in July and 5.9% in June. This measure is posting a notably cautious unwind from the 6.8% spike seen last October, and the 7.7% all-time high in May and June of last year, though the drop over the past two months is encouraging.

The U.S. Case/Shiller home price index rose 1.39% to 141.86 in June, from a revised 139.91 in May (was 139.84) for the 20-city index. That's still down 15.44% year-over-year, as the pace of decline slows from -17.02% previously. The 10-city index rose 1.40% to 153.20 from a revised 151.08 in May (was 151.00). It's down 15.13% year-over-year, compared to a -16.79% pace previously. Cleveland again led the price gains, up 4.18%, followed by San Francisco, up 3.78%. Only two cities are still seeing home price declines, Las Vegas, down 1.99%, and Detroit down 0.80%.

The U.S. Richmond Fed manufacturing index was steady at 14 in August compared to July, which was more than double June's 6 print. The index was -16 a year ago. Most of the components improved. This month's shipment index rose to 21 from 16. The employment index rose to unchanged from -5. The new order volume dipped to 18 from 24. Prices paid rose to 1.15% from 0.75%, while prices received increased to 0.86% from 0.58%.

The U.S. FHFA home price index rose 0.5% in June after rising a revised 0.6% in May (was 0.9%). Gains were seen in five of the nine regions surveyed.

The U.S. ICSC Goldman Sachs chain store sales index rebounded 0.6% in the week ended August 22, following a 0.9% dip the week before. On a year-over-year basis, the index declined 0.2%, compared to -0.6% the week before. For the month-to-date, year-over-year pace, the index slowed to a 0.7% rate, from 0.8% previously.

Germany's economy exited recession in the second quarter, growing by 0.3%, as net trade and private consumption offset a sharp reduction in firms' inventories, Federal Statistics Office data showed.

The number of home purchase loans approved by British banks in July jumped 76.7% on the year to its highest since Feb. 2008, a survey showed on Tuesday, but net mortgage lending growth was its weakest in 9 years. The British Bankers' Association said 38,181 mortgage applications were approved last month, compared with 35,564 in June and up from 22,248 in July last year. The average value of a loan rose to £139,700 from £136,400 in June.
William_andrews
Andrews is managing editor of the Investing Channel for BusinessWeek.com

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