Stocks Hit New Highs for '09

AUGUST 25, 2009

By PETER A. MCKAY and GEOFFREY ROGOW

Stocks reached another round of new highs for the year, as strong readings on home prices and consumer confidence lifted the market while a decline in oil prices weighed on energy stocks.

The Dow Jones Industrial Average added 30 points, or 0.3%, to 9539.29, for its sixth consecutive day of gains. Of its 30 components, 23 traded in the green, including Boeing, up 2.4%, and Home Depot, up 1.2%. For the S&P 500, up 0.2% at 1028, consumer stocks were the strongest sector since the opening bell.

Market Data Center > .Most Actives | Gainers | Losers New Highs and Lows | Money Flows Intraday Futures | Currencies .The Dow had opened sharply higher on the series of economic reports, with market participants also noting the nomination of Federal Reserve Chairman Ben Bernanke for a second term. A deep slide in oil prices in the late morning damped the energy sector and had the broader market in retreat.

As the day progressed, however, traders have looked past the continued decline in oil, with the consumer, financial and industrial stocks pacing the S&P 500 higher. The Nasdaq Composite Index rose 0.3% to 2024.23.

Setting off the day's gains, U.S. home prices rose in the second quarter for the first time in three years with a second-straight monthly increase in June, according to S&P Case-Shiller home-price indexes. For the second quarter, the S&P Case-Shiller U.S. National Home Price Index posted a 14.9% drop from a year earlier, an improvement over the record 19.1% drop in the first quarter. It was up 2.9% sequentially.

The Conference Board said its index of consumer confidence rose to 54.1 in August from a revised 47.4 in July. The latest reading was well above economists' expectations of a 47 reading for August.

The reports came as many participants were growing wary of a possible market correction after the recent rally and worries that a U.S. economic recovery might be further off than expected.

"The data are confirming that the economy is probably already out of recession," said Peter Cardillo, chief market economist at Avalon Partners in New York. "But, look, the market is still up a lot and it is going to run into resistance."

Strong readings of home prices and consumer confidence reassured investors looking for signs of recovery. The market was held in check by weakness in the energy sector, as oil gave back some recent gains. Peter McKay reports after the closing bell.

Banks were particularly volatile as traders leapt into some of the more beaten-down companies. Notably, both Fannie Mae and Freddie Mac were once again in the green on heavy volume, continuing a trend that has lasted nearly a week. Analysts say traders are betting the government won't close or dismantle the struggling companies, though that remains a possibility.

Meanwhile, few financials are finding themselves in the portfolios of value investors. And, with buy and hold participants on the sidelines, volatility should remain high throughout the sector.

"We are trying to make sure we have a margin of safety and that's reflected in that we have no banks in our portfolio right now," said Jordan Smyth, managing director, Edgemoor Investment Advisors and co-portfolio manager of the Meehan Focus Fund. "Nobody knows exactly what's going on deep inside those financial institutions and when we buy, we need to have some room for error."

Weighing against the gains, was a pullback in the energy sector. Oil and gas producer Apache Corp., oil-services provider Schlumberger, and coal producer Massey Energy were among the big losers, off more than 2% each.

Oil prices briefly touched $75 a barrel but then retreated. Oil came into Tuesday's action on a five-day winning streak during which it leapt more than 11%, helped by hopes for an economic recovery.

Oil futures closed down $2.32 to $72.05 a barrel on the New York Mercantile Exchange.

President Barack Obama praised Mr. Bernanke for helping the world economy avoid a depression. Most traders and analysts hailed the move as providing stability, eliminating one risk factor that could have weighed on the market as the end of Mr. Bernanke's current term drew closer.

Keith Springer, president of Capital Financial Advisory Services, in Sacramento, Calif., said that Mr. Bernanke's reappointment was a positive for the market but would be unlikely to fuel a major rally by the end of Tuesday's session.

"I think the market is comfortable with Bernanke and trusts Bernanke," said Mr. Springer, adding, "It's probably already factored in."

Overseas, the Shanghai Composite closed 2.6% lower as Chinese Premier Wen Jiabao on Tuesday cautioned against being "blindly optimistic" about the country's economic recovery. He said the boost from short-term policies may fade, while longer-term policies will take some time to have an impact.

But markets rallied in Europe as the FTSE 100 set a new 2009 closing high, up 20.57 points at 4916.80 and the German DAX gained 0.7%.

Short-term Treasurys felt some price pressure from a muted $42 billion two-year cash note auction that needed a higher yield to sell, but also attracted decent indirect bids, a category that includes foreign central banks.

Keith Springer is President of Capital Financial Advisory Services, a registered investment advisor, providing Wealth Management and Mortgage Consulting Services.  For more information on how to build and maintain a solid retirement plan, please contact Keith Springer at 916-925-8900 or Keith@KeithSpringer.com