Banks, Homebuilders Lead Stock Rally

The S&P 500 and Nasdaq jumped over 3% Monday as analysts turned more optimistic on both groups

U.S. stocks closed sharply and broadly higher Monday.

On Monday, the 30-stock Dow Jones industrial average finished higher by 235.44 points, or 2.85%, at 8,504.80. The broader S&P 500 index gained 26.83 points, or 3.04%, to 909.71. The tech-heavy Nasdaq composite index added 52.22 points, or 3.11%, to 1,732.36. On the New York Stock Exchange, 27 stocks were higher in price for every four that declined. Nasdaq breadth was 22-5 positive.

Treasuries fell as stocks rose. The dollar index was lower. Gold futures were also lower. Oil futures, and shares of oil companies, were solidly higher, on expectations of increased demand for petroleum.

Market-leading groups Monday included homebuilders, which got a boost from an upgrade of Lennar Corp. (LEN) at Citigroup, better-than-expected earnings at Lowe's Companies (LOW), and a trade group's report showing continued confidence among builders. The Lowe's results also lifted retailers.

Banks and other financials rallied on positive analyst comments and M&A activity. Rochdale Securities analyst Richard Bove said he sees an explosion in bank earnings and growth. Bank of America (BAC) stock was upgraded by Goldman Sachs.

Also, Warren Buffett upped his stakes in Wells Fargo (WFC) and US Bancorp (USB).

There are only a few reports out this week to keep recession-wary markets busy. Investors will be looking at the U.S. housing starts data for April on Tuesday, while Thursday brings the Philadelphia Fed's May index and weekly initial jobless claims on Thursday.

A Senate committee is scheduled to grill Treasury Secretary Timothy Geithner Wednesday on the TARP

program.

"Confidence has been on the rise and that has increased the willingness of investors shift out of the safety of cash and into riskier assets," notes Action Economics strategist Michael Wallace. "After some corrective activity in stocks last week, traders will need additional fuel to push prices higher."

Standard & Poor's chief economist David Wyss notes that last week's data "casts doubt on any quick turnaround in the economy." Wyss says that although the data are still pointing to a slower pace of decline, the 0.5% drops in April retail sales and industrial production show it may not be quick. "Dismal GDP data in Europe and Japan suggest exports will continue to suffer, although the March trade gap came in better than expected," he says.

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