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Stocks Bounce Back on New Housing Data

Posted on: Tuesday, 18 May 2004, 06:00 CDT

NEW YORK - Stocks rebounded in a lackluster rally Tuesday after investors were coaxed back into the market by lower-than-expected housing figures that indicated the economy might be cooling.

The Commerce Department's housing report gave the market some much-needed hope that the Federal Reserve, concerned about an overheating economy, might not raise interest rates as high or as fast as investors have feared.

Bargain hunters also entered the market after the major indexes dropped precipitously on Monday in the wake of the Iraqi Governing Council president's slaying. Analysts said Wall Street was struggling to find a bottom to the recent selloff so investors could pick up attractive stocks at bargain prices, though the light volume of trading meant that many investors were still sitting on the fence.

"All this bad news we've had, you've got to look at the market not just as a whole, but also at individual stocks," said Jay Suskind, head trader at Ryan Beck & Co. "Let's not throw the baby out with the bathwater here. There's some strong stocks out there."

In late afternoon trading, the Dow Jones industrial average was up 57.56, or 0.6 percent, at 9,964.47. Broader stock indicators were moderately higher. The Standard & Poor's 500 index gained 7.23, or 0.7 percent, to 1,091.33, and the Nasdaq composite index was up 19.09, or 1 percent, at 1,895.73.

The Commerce Department said homes were being built at an annual rate of 1.97 million, representing a 2.1 percent decline from a strong March reading. With mortgage rates expected to rise, economists expect the housing market to come off its recent flurry of activity, but the industry was expected remain healthy.

However, with volume on the New York Stock Exchange very light and prices slipping slightly from their session highs, analysts expected more losses and few gains, at least in the short term.

"This is not the stuff of which bull markets are rejuvinated," said Hugh Johnson, chief investment officer at First Albany Corp. "It looks like the market's got to find a lower level before the bull market can resume."

And although many investors are looking to the Federal Reserve meeting in June for a reading on inflation and interest rates, it could be a while before Wall Street gets a good reading on how well any rate hikes are managing inflation.

"The market is still going to have some trouble figuring out if we're going to have a big or small inflation spike, and is the Fed going to be ahead or behind it," said Scott Wren, equity strategist for A.G. Edwards & Sons. "Those questions are going to take a couple of months to work out, and until then, we'll be stuck in this range."

The nation's retailers continued to show strong earnings for the first quarter. Dow component Home Depot Inc. jumped 92 cents to $34.39 after posting a 21 percent hike in quarterly profits, surging past Wall Street expectations by nine cents per share before one-time charges.

Staples Inc. beat estimates by 3 cents per share on surging sales, posting its 10th straight quarter where it increased profits by 20 percent or more. The office supply retailer gained $2.05 to $26.47.

Book retailer Barnes & Noble Inc. was up 41 cents at $29.06 after exceeding earnings expectations by 5 cents per share on strong same-store sales for the first quarter.

Department store chain J.C. Penney Co. Inc. beat estimates by 4 cents per share, doubling its operating profit from a year ago, although the company was forced to take a $77 million charge due to the sale of its Eckerd drugstore chain. Penney rose $2.15 to $33.75.

High-end retailer Saks Inc. rose 19 cents to $14.17 after meeting expectations on record net income.

Advancing issues outnumbered decliners by about 5 to 2 on the NYSE, where volume came to 1.03 billion shares, compared with 1.09 billion at the same point Monday.

The Russell 2000 index of smaller companies was up 4.46, or 0.8 percent, at 539.80.

Overseas markets recovered somewhat from Monday's massive selloff. India's Sensex index closed 8.3 percent higher after a record 11.1 percent dive in the previous session. Japan's Nikkei stock average climbed 2 percent for the session. In Europe, Britain's FTSE 100 closed up 0.3 percent, France's CAC-40 rose 0.5 percent for the day and Germany's DAX index gained 0.9 percent in late trading.

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New York Stock Exchange: http://www.nyse.com

Nasdaq Stock Market: http://www.nasdaq.com

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