Markets & Finance

Stocks Finish with Frothy Gains


Stocks finished at session highs Tuesday as investors cheered economic reports that showed strength in the housing sector and in consumer confidence.

The technology-laced Nasdaq composite index was the best performer among the major indexes, jumping 46.60 points, or 3.09%, at 1,556.69, led by hefty gains in semiconductor and biotech shares. This was the highest close for the Nasdaq since June, 2002, according to Standard & Poor's MarketScope.

The Dow Jones industrial average added 179.97 points, or 2.09%, at 8,781.35. The broader Standard & Poor's 500 Index added 18.26 points, or 1.96%, at 951.48 -- the highest level since August, 2002, when the index finished at 962.70.

The latest economic reports on new and existing home sales for April and consumer confidence for May were upbeat, spurring a wave of buying Tuesday.

"A major source of consumer wealth continues to expand, if a bit less briskly than in recent years," Maury Harris, chief U.S. economist at UBS Warburg said, in reference to the housing data. "Taken together, these reports offer modest support that post-war confidence is strengthening slowly and should facilitate the second half growth pickup that we anticipate."

The housing market continues to be robust. Sales of single-family homes rose at a better-than-expected pace in April, with a rise of 1.7% to a seasonally adjusted annual rate of 1.028 million. Existing homes sales jumped 5.6% to a 5.84 million unit pace, from a 5.53 million unit pace, also well above median forecasts.

The Conference Board's latest read on consumer confidence showed a rise to 83.8 in May, up from 81.0 in April. Strength was in the expectations component which increased to 94.4 from 84.8. However, the present conditions component fell to 67.9 from 75.3. That's the lowest reading since January, 1994 (excluding the war months of March and April, 2003), says economic research outfit MMS International.

On Wednesday, investors will get an update on April durable orders. MMS expects a decline of 1.5%, while shipments are seen holding unchanged. The disappointing data in other factory reports, like ISM and industrial production, suggest some downside risk in the figure excluding transportation, says MMS.

Among earnings news Wednesday: discount club Costco Wholesale (COST), Krispy Kreme Doughnuts (KKD), home builder Toll Brothers (TOL), and cosmetics maker Elizabeth Arden (RDEN).

Though they took a backseat today, worries over the dollar's decline against other major currencies remain. Spurred by the latest comments by Treasury Secretary John Snow, the value of the dollar against the euro has been pulling back to record lows. The retreat is causing foreign investors to avoid U.S. stocks, fearing dollar weakness will hurt their returns.

In company news Tuesday, Danaher (DHR) fell sharply after a Barron's report that hedge fund Seabreeze Partners is shorting the maker of process and environmental controls. Seabreeze sees the stock as overvalued.

Shares in Dow member Altria (MO) pulled back Tuesday following a runup last week when a federal judge said that she would not throw out parts of a suit against tobacco companies related to claims of advertising fraud and deception.

Tenet Healthcare (THC) shares rose after the hospital chain announced the resignation of embattled CEO Jeffrey Barbakow. Company president Trevor Fetter became acting CEO of Tenet. The company has been the target of a government investigation into its billing practices.

Treasury Market

U.S Treasuries finished a rocky session lower Tuesday, taking a pause from a recent runup sparked by expectations the Federal Reserve may cut interest rates amid new signs of economic weakness.

Later in the week, investors will digest the revision to first-quarter gross domestic product, April personal income and spending figures, the final reading of the University of Michigan's May consumer sentiment index, and the Chicago Purchasing Managers Index for May.

World Markets

European markets bounced back as worry over consequences of the fall in value of the U.S. dollar took a backseat to strong data on housing in the U.S. Investors have been nervous that a strengthening euro could hurt corporate profits and stall an already tepid economic recovery.

In London, the Financial Times-Stock Exchange 100 index finished higher by 12.60 points, or 0.32%, to 3,992.40, amid speculation the Bank of England will lower rates in months ahead to boost economy. In Germany, the DAX Index added 45.32 points, or 1.60%, to 2,873.60, as IFO officials see deflation becoming more likely with the euro rising against the dollar. In France, the CAC 40 finished up 10.77 points, or 0.37%, to 2,896.29.

In Asia, markets ended lower. Japan's Nikkei index fell 107.08 points, or 1.3%, to 8,120.24, lacking fresh buying news. Trade turnover was very low, partly because of the absence of foreign players following the U.S. holiday on Monday. In Hong Kong, the Hang Seng index stumbled 71.9 points, or 0.76%, to 9,420.81.


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