U.S. stocks closed solidly higher Monday as a stronger-than-expected October home sales report helped to reassure investors' faith in the economic recovery.
Investors from the outset of trading demonstrated hope that government spending and low interest rates would propel the economy forward in the months ahead. Commodities-related issues got an additional boost from a weaker dollar. Weakness in the greenback came amid calls for central banks to continue stimulus plans well into the new year.
Traders were also encouraged by a report that October existing home sales rose 10.1% to a 5.54 million unit annual rate.
On Monday, the 30-stock Dow Jones industrial average finished higher by 132.79 points, or 1.29%, at 10,450.95. The broad Standard & Poor's 500-stock index was up 14.86 points, or 1.36%, at 1,106.24. The tech-heavy Nasdaq composite index gained 29.97 points, or 1.40%, to 2,176.01.
On the New York Stock Exchange, 23 stocks were higher in price for every seven that declined. Breadth on the Nasdaq was 19-8 positive. Trading volume was light.
Oil & gas, basic materials, and utilities stocks were among the market leaders.
Campbell Soup (CPB) reported first-quarter sales of $2.2 billion and earnings of 87 cents per share, above Wall Street consensus estimates, and forecast sales growth of 4-5% in coming fiscal years.
Hewlett-Packard (HPQ) will wrap up the reporting season for the Dow after the close Monday.
Treasuries edged higher in choppy trading after an auction of $44 billion in two-year notes Monday afternoon. The 10-year note was lower at 99-29/32 for a yield of 3.392%, while the 30-year bond was lower at 101-02/32 for a yield of 4.316%.
The U.S. dollar index was off 0.60 to 75.05 even though October existing home sales unexpectedly soared 10.1%. The buck was being hammered by comments from St. Louis Fed President Bullard, who said the the FOMC should maintain its stimulus plans through March at least, and should come off zero rates only when economy recovering strongly.
December gold futures were up $17.70 to $1,164.50 per ounce, down from a record $1.174.00 earlier in the session.
December West Texas Intermediate crude oil futures were higher.
Stocks in Europe were sharply higher Monday, with the FTSE 100 index in London rising 1.98%, the DAX index in Frankfurt up 2.44%, and the CAC 40 index in Paris climbing 2.25%.
Tokyo stocks were closed for a holiday. Hong Kong's Hang Seng index rose 1.41%, while Shanghai's benchmark index gained 0.92%.
In economic news Monday, U.S. existing home sales climbed 10.1% to a 6.10 million-unit annual pace in October, from a revised 5.54 million rate in September. Single family sales rose 9.7% while condo/coop sales increased 13.2%. The months' supply of unsold homes fell to 7.0 from 8.0 in September (revised from 7.8 months). The median sales price fell to $173,100 from $176,000 (revised from $174,900). That's down 7.1% year-over-year as price declines slow from over 8% previously, notes Action Economics.
Tuesday's third-quarter U.S. gross domestic product (GDP) report is expected to be revised lower.
The National Association of Business Economists said Monday that the "Great Recession is over," with the "vast majority" of business economists revising their growth forecasts higher. But, the NABE also believes the recovery will be more moderate than those typically seen after steep declines in economic activity. New NABE estimates show GDP growth is expected to rise at an above trend 2.9% pace in the second half of this year, following declines of 6.4% in the first quarter and 0.7% in the second. The housing market contraction is seen coming to an end after three years, with a substantial rebound anticipated, albeit from a very low base.
Key areas of concern, however, are the burgeoning budget deficit and the high unemployment rate. The unemployment rate is expected to hold at an average of 10% from this quarter to the second quarter of 2010. Firms are expected to start adding jobs relatively soon. Inflation is expected to remain subdued.
European Central Bank President Jean-Claude Trichet repeated that rates are appropriate. He added that "as of today it is premature to declare the financial crisis over", but added that "when the time comes there should be no doubts about the ECB's determination and ability to exit". Trichet stressed again that the ECB "will make sure extra liquidity measures are phased out in a gradual and timely fashion in order to counter any threat to price stability over the medium and long term".
International Monetary Fund Managing Director Dominique Strauss-Kahn said it is still too early for a general exit from stimulus policies, and that governments should err on the side of caution, with a late exit being potentially less damaging than an early one. In a speech in London, Strauss-Kahn said that, while conditions in the global economy are improving, they remain highly vulnerable, threatened by undercapitalized banking systems, weak household finances, high unemployment and large public deficits. He added that designing and communicating plans for fiscal consolidation should be the top priority, especially for advanced economies, where there is "little sign" of inflationary pressures, and monetary policy can afford to stay accommodative for "some time."
British Prime Minister Gordon Brown said ending fiscal stimulus too soon would smother economic growth, seeking to build on a poll showing his Labor Party trailing the opposition Conservatives by the thinnest margin this year. "We should be careful not to abandon that stimulus too rapidly," Brown told business leaders today at the Confederation of British Industry conference in London. "Choking off recovery by turning off its life support too early would be fatal for global growth."
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