U.S. Stocks Advance Amid Speculation Drop Was Overdone
U.S. Stocks Drop as Home Sales, Durable Goods Miss Forecasts
Ramin Talaie/Bloomberg
A trader works on the floor of the New York Stock Exchange in New York.
A trader works on the floor of the New York Stock Exchange in New York. Photographer: Ramin Talaie/Bloomberg
Aug. 25 (Bloomberg) -- David Resler, chief economist at Nomura Securities, talks about the outlook for the U.S. housing market. Resler, speaking with Deirdre Bolton on Bloomberg Television's "InsideTrack," also discusses the impact of housing on the economy. (Source: Bloomberg)
Aug. 26 (Bloomberg) -- Robin Griffiths, a technical strategist at Cazenove Capital Management Ltd., talks about the outlook for a decline in equity markets. He speaks with Mark Barton on Bloomberg Television's "Countdown." (Excerpt. Source: Bloomberg)
U.S. stocks rose, with the Dow Jones Industrial Average recovering from an early 102-point slide, as investors speculated that recent declines in equities overshot the potential damage from a slowdown in the economy.
Home Depot Inc., Pfizer Inc. and Kraft Foods Inc. climbed at least 1 percent for the top advances in the Dow. Toll Brothers Inc. rose 5.8 percent after unexpectedly reporting its first quarterly profit since 2007. D.R. Horton Inc. jumped 4.6 percent after Ticonderoga Securities advised buying the shares. Medtronic Inc. gained 2.1 percent after an analyst upgrade.
The Standard & Poor’s 500 Index increased 0.3 percent to 1,055.33 as of 4 p.m. in New York after slumping earlier to as low as 1,039.83. The Dow rose 19.61 points, or 0.2 percent, to 10,060.06.
“Investors are maybe just looking at some bargain- hunting,” said Richard Sichel, who oversees $1.4 billion as chief investment officer at Philadelphia Trust Co. “Stocks have gotten cheaper recently.”
Earlier declines came after new-home sales slid to a record low and a slower-than-forecast rise in durable-goods orders cast doubt on the economic recovery. The S&P 500’s 13 percent tumble from its high for the year in April has dragged it to 12.7 times estimated earnings of its companies, according to Bloomberg data. That’s near the cheapest since March 2009, when the index began a rebound of as much as 80 percent from a 12-year low.
Economy Data
Stock futures extended declines in early trading after sales of U.S. new homes unexpectedly dropped in July to the lowest level on record, signaling that even with cheaper prices and reduced borrowing costs the housing market is retreating. Purchases fell 12 percent from June to an annual pace of 276,000, the weakest since data began in 1963, figures from the Commerce Department showed today in Washington. The median price of $204,000 was the lowest since late 2003.
Orders for goods meant to last at least three years increased less than forecast in July, a sign that one of the few remaining bright spots in the economy is cooling. Bookings increased 0.3 percent, compared with the 3 percent median estimate of 75 economists surveyed by Bloomberg News. Excluding transportation equipment, demand unexpectedly fell 3.8 percent, the most since January 2009. The survey median projected a 0.5 percent gain.
The S&P 500 dropped as much as 1.1 percent to near 1,040 in the first hour of trading today. That is considered a so-called support level by traders whose decisions are influenced by price charts. The index rebounded after falling to near 1,040 in May and June.
1,040 Level
“Because the 1,040 level held, that was viewed as a positive technical signal,” said Walter “Bucky” Hellwig, a Birmingham, Alabama-based senior vice president at BB&T Wealth Management, which oversees $17 billion. “Short-term traders started buying. The selloff did not continue.”
Homebuilder shares rallied even after the sales data on speculation the worst of the decline is over, according to Susquehanna International Group LLP and Citigroup Inc. Homebuilders gave a boost to consumer discretionary stocks, which gained the most out of 10 groups in the S&P 500.
“We think the reaction of the homebuilder stocks to yesterday’s existing home sales data (up in a down tape) and the reaction to today’s NHS data suggests a bottom is in on the stocks barring a dramatic downdraft in the overall equity market,” New York-based Citigroup analyst Josh Levin wrote in a note to clients today. A gauge of homebuilder shares across S&P indexes advanced 3.7 percent after existing home sales fell by a record 27 percent in July.
Homebuilders
D.R. Horton Inc. gained 4.6 percent to $10.43. The second- largest U.S. homebuilder by revenue was raised to “buy” from “neutral” at Ticonderoga Securities LLC.
Toll Brothers Inc. rallied 5.8 percent to $17.13. The largest U.S. luxury homebuilder unexpectedly reported its first quarterly profit since 2007 after a tax benefit and drop in writedowns.
Housing-related stocks also advanced. Home Depot Inc., the largest U.S. home-improvement retailer, jumped 2 percent to $28.33. Sherwin-Williams Co., the largest U.S. paint retailer, climbed 3 percent to $69.15.
Health-care stocks rose second most out of 10 groups in the S&P 500. Intuitive Surgical Inc. gained 2.7 percent to $276.40. The maker of systems that control surgical instruments during surgery was upgraded to “outperform” from “market perform” by Wells Fargo & Co., which also raised its share valuation range to $340 to $360 from $285 to $325.
Medtronic
Medtronic Inc. gained 2.1 percent to $31.87. The world’s largest maker of heart devices was raised to “neutral” from “sell” at Miller Tabak & Co. LLC.
VeriFone Systems advanced 8.5 percent to $24.32 after the provider of electronic payment technology raised its fiscal 2010 profit forecast to as much as $1.27 a share, higher than the $1.15 average of seven estimates in a Bloomberg survey.
European stocks retreated today, with the Stoxx Europe 600 Index declining 0.8 percent after S&P cut Ireland’s credit rating. Japan’s Nikkei 225 Stock Average declined 1.7 percent to its lowest level since April 30, 2009.
Dominion Resources slid 1.8 percent to $43.15, helping utilities stocks slip the most out of 10 groups in the S&P 500. Morgan Stanley lowered its recommendation on the owner of Virginia’s largest utility to “underweight” from “equal weight.”
Energy stocks declined second most in the gauge as shares of coal producers and oil companies dropped on concern the economy is slowing. Massey Energy Co. decreased 3.4 percent to $29.14 for the biggest loss in the S&P 500. Peabody Energy Corp., the largest U.S. coal producer, sank 2.3 percent to $42.23. Cabot Oil & Gas Corp. slipped 2.5 percent to $27.97. Rowan Cos. dropped 2.3 percent to $25.02.
To contact the reporter on this story: Kelly Bit in New York at kbit@bloomberg.net.
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