US stocks extended their gains today with a modest advance as investors weighed fresh economic data, including a sharp drop in new home sales, for clues as to whether more interest rate cuts are in the offing.
The Commerce Department’s report that sales of new homes plunged 8.3% in August to the lowest level in seven years was the latest round of bad news for the housing sector, but its arrival did not frighten investors. Instead, stocks built on the sizeable gains logged yesterday.
Concerns that housing market woes could drag the broader economy into a recession have periodically bubbled up in recent months. However, with the Fed’s larger-than-expected rate cut last week, investors appeared hopeful that the central bank’s move to make capital cheaper would provide adequate stimulus to stave off a broad slowdown.
And with the final trading day of the quarter arriving tomorrow, some investors were thought to be buying and selling to dress up their portfolios.
“You have positioning for the family photo,” said Erik Davidson, senior director of investments at Wells Fargo Private Bank. He noted that as investors go about the usual business of shoring up their positions for the end of the quarter, some have been surprised that there has not been more bad news about tightness in the credit markets or about investments soured by bad mortgages.
“It’s almost a return to normalcy. This is a bit of a relief rally, and the bad things that people are afraid of aren’t really happening,” he said of gains in recent sessions.
The Dow Jones industrial average rose 34.79, or 0.25%, to 13,912.94. The Dow now sits only about 87 points below its record close of 14,000.41 on July 19.
Broader indexes also advanced. The Standard & Poor’s 500 index rose 5.96, or 0.39%, to 1,531.38, and the technology-heavy Nasdaq composite index rose 10.56, or 0.39%, to 2,709.59.
Bond prices rose, pushing the yield on the benchmark 10-year Treasury down to 4.57% from 4.62% at yesterday’s close. Bond prices and yields move in opposite directions.
The dollar was mixed against other major currencies, while gold prices edged higher.
Dave Hinnenkamp, chief executive KDV Wealth Management in Minneapolis, said that with the Dow not far off its highs, some investors are growing more confident in the market’s prospects.
“A lot of it has to do with people sitting on the sideline with some cash when the market was coming down,” he said. “And now that they’ve seen it bounce up, I think some of it has to do with people diving back into the market not wanting to miss the rally.”
Wall Street saw a relatively calm session despite some potentially unnerving economic news, including a report that the US economy was a little softer during the second quarter than earlier estimated. The Commerce Department said gross domestic product expanded at a 3.8% annual rate in the second quarter – less than the previously reported 4% increase.
However, there was some strong news about the nation’s workforce.
Jobless claims fell 15,000 to 298,000 in the week ended September 22 – the lowest level since May and an indication the labour market is still healthy. A strong job market is important to Wall Street, which is counting on continued strength in consumer spending to drive the economy.
The reports followed others issued this week that suggested that the economy remains sluggish, which could persuade policymakers to lower rates further when they meet at the end of next month. Lower rates make cash cheaper to borrow, so they tend to fuel spending and merger-and-acquisition activity.
“The fact that the Fed has cut a half-point, I think it shows that they are willing to act. That is one of the most important things in that it gives the investor community reason to act,” said Mr Hinnenkamp.
“I think one of the more important factors with regard to where we go from here is the upcoming earnings season.”
A continuation of recent investor optimism appeared to help Wall Street shrug off some of the housing news.
KB Home said it expects the housing industry will continue to suffer through next year. However, the home builder posted a narrower-than-expected loss for its fiscal third quarter, sending the stock up 62 cents, or 2.6%, to 24.71 dollars.
In other corporate news, Sallie Mae, the largest US student lender officially known as SLM Corp, rose 4.11 dollars, or 9.1%, to 49.12 dollars after a group of investors that had planned to acquire the company said it wants out of the deal, leading to speculation that the lender might be able to fetch new terms for a buyout.
Advancing issues outnumbered decliners by more than 2 to 1 on the New York Stock Exchange, where volume came to 1.18 billion shares compared with 1.29 billion shares traded yesterday.
The Russell 2000 index of smaller companies rose 4.89, or 0.60%, to 814.01.