Stocks have come off their highs of the day during Monday's mid-afternoon trading but continue to show considerable strength as investors respond to some positive economic and corporate news as well as Treasury Secretary Geithner's latest plan to help the troubled financial sector.
Existing home sales surprised analysts when they rose in February, according to a report released by the National Association of Realtors, with sales rebounding after hitting a twelve-year low in the previous month.
The report showed that existing home sales rose 5.1 percent to a seasonally adjusted annual rate of 4.72 million units in February from a pace of 4.49 million units in January. Economists had expected sales to slip to a 4.45 million unit rate.
In an interview with RTT News, Oscar Gonzalez, an economist with John Hancock Financial Services, discussed the surprise jump in existing home sales. Gonzalez said that although it's very early to say we've hit bottom, the latest housing reports indicate the worst is behind us.
However, the very good existing home sales report did not push Gonzalez to change his forecast of a decline in new home sales for February.
In corporate news, Walgreen (WAG) reported second quarter earnings that fell year-over-year but still pleased investors. Comparable stores sales increased 1.3 percent in the quarter, while comparable store front-end sales decreased 1.2 percent.
Earlier, details of Geithner's plan were announced, with the latest measure involving setting up an investment fund to buy mortgage-related securities and other assets that are hurting the balance sheets of banks. The new Public Private Investment Program would combine taxpayer money with private funds, aiming to buy loans and free up banks to renew lending.
The plan involves using up to $100 billion in funds from the $700 billion financial rescue plan passed in 2008 in addition to capital from private investors to generate an estimated $500 billion to purchase the toxic assets, a number that could double to $1 trillion over time.
In an interview with RTT News, Hugh Johnson, chief investment officer for Johnson Illington Advisors, expressed a little bit of skepticism about Geithner's bad asset program.
I don't know if it can do the trick - I have my doubts, he said. Johnson added, There's no question that the plan is positive and to some extent will certainly help strengthen bank balance sheets, but he emphasized that until we see a recovery in loan demand, it's not likely to lead to a big increase in lending as well as a recovery in the economy.
Johnson stressed that the prices of those toxic assets are the big missing piece and predicted that there's likely to be a struggle as prices are negotiated. In terms of private sector interest, Johnson said, At the right price, the private sector will certainly step up to the plate, though he reiterated that the right price is the key.
The major averages have been rangebound in recent trading, hovering firmly in positive territory but off their best levels of the day. The Dow is currently up 283.15 at 7,561.53, the Nasdaq is up 51.40 at 1,508.67 and the S&P 500 is up 30.27 at 798.81.
Nearly all of the Dow components are in positive territory in mid-afternoon trading, contributing to the standout gain by the blue chip index. Of the thirty Dow components, General Motors (GM) is currently the only one in negative territory, down 0.3 percent.
Benefiting from a positive reaction to the Obama administration's toxic asset plan, financial stocks within the Dow are turning in some of the best performances.
One of the biggest gains is being shown by JP Morgan (JPM), which is up 15.6 percent on the day, moving back toward the more than one-month closing high it hit last Wednesday.
Bank of America (BAC) and Citigroup (C) are also posting massive gains on the day, rising 18.6 percent and 16.4 percent, respectively.
American Express (AXP), Alcoa (AA), and Boeing (BA) are also posting considerable gains on the day. American Express and Alcoa are up 9.5 percent and 8.7 percent, respectively, while Boeing has risen 6.6 percent so far.
While banking and brokerage stocks are leading the climb in the broader markets, the vast majority of the major sectors are showing significant upward move.
Housing stocks are seeing considerable strength, benefiting from the release of the strong monthly existing home sales results. The Philadelphia Housing Index is up 7.2 percent in response to the news.
Within the housing sector, Hovnanian Enterprises (HOV) is turning in one of the best performances, up 18.5 percent on the day. With the advance, the stock has broken through recent resistance to reach its highest level in over a month.
Electronic storage, railroad, and semiconductor stocks are also posting noteworthy gains. The Amex Disk Drive Index is up 6.6 percent, while the Dow Jones Railroads Index and the Philadelphia Semiconductor Sector Index are up 6 percent and 4.6 percent, respectively.
With the massive gains in the broader markets, most of the other major sector indices are also posting gains on the day.
In overseas trading, stock markets across the Asia-Pacific region closed substantially higher on Monday, with Japan's benchmark Nikkei 225 Index closing up 3.4 percent.
The major European markets also ended the session firmly in positive territory, with the U.K.'s FTSE 100 Index ending the session up 2.9 percent, while the French CAC 40 Index and the German DAX Index closed with gains of 2.8 percent and 2.7 percent, respectively.
In the bond market, treasuries are continuing to see some weakness as stocks climb, driving the yield on the benchmark 10-year note up 2.9 basis points to 2.654 percent.
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