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Late Session Rally Propels Stocks To Modest Gains - U.S. Commentary

7/27/2009 4:41 PM ET

After experiencing a largely lackluster session on Monday, stocks staged a modest rally in late session trading. The major averages were all able to finish in positive territory by mild margins on another day marred by low volume.

On the economic front, the Commerce Department released a report showing that new home sales in the month of June increased by much more than expected. New home sales jumped by 11 percent, the sharpest increase in nearly nine years.

The Commerce Department showed that new home sales rose to an annual rate of 384,000 in June from the revised May rate of 346,000. Economists had expected sales to rise to 352,000 from the 342,000 originally reported for the previous month.

The stronger than expected sales growth came amid a pullback in prices, with the median sales price of new houses sold in June falling 5.8 percent to $206,200 from $219,000 in the previous month. The median sales price had increased for two consecutive months.

In earnings news, RadioShack (RSH), Tellabs (TLAB) and Corning (GLW) reported earnings that beat Wall Street estimates, while Verizon (VZ) and Honeywell (HON) reported results that were in-line with expectations. Aetna (AET), however, was one of the major firms whose quarterly earnings fell short of estimates.

The major averages showed a notable move to the upside going into the close, ending the session just above the unchanged line. The Dow closed up by 15.27 points or 0.2 percent at 9,108.51, the Nasdaq climbed by 1.93 points or 0.1 percent to 1,967.89 and the S&P 500 rose by 2.92 points or 0.3 percent at 982.18.

Sector News

Banking and housing stocks turned some of the day's strongest performances in. The Kbw Bank Index closed up by 3.1 percent, remaining in a recent range, while the Philadelphia Housing Sector Index climbed by 2.9 percent and reached its best closing level in over two months.

Housing stocks benefited from the new home sales report, with Standard Pacific (SPF), Hovnanian Enterprises (HOV), and Centex (CTX) posting notable gains.

Further, brokerage stocks also posted strong gains on the day, with the NYSE Arca Securities Broker/Dealer Index climbing by 1.9 percent on the session. The climb propelled the index to its best finish in well over nine months.

While commercial real estate, electronic storage and steel stocks also rose, weakness remained visible among retail and health insurance stocks. The S&P Retail Index posted a loss of 1.1 percent, pulling back further off the nearly ten-month closing high that it set last Thursday.

RadioShack dragged the index lower after the firm's second quarter revenues fell by 2.9 percent, coming in at $965.7 million compared to analyst estimates of $977.86 million. The stock plunged by 6.7 percent, backing off of its best closing level in over nine months.

Health insurance stocks are also surrendered some recent gains, as reflected by the 0.8 percent pullback by the Morgan Stanley Healthcare Payor Index. The index fell from its best closing level in nearly a month.

Dow Components

A slim majority of the Dow components ended the day in positive territory, contributing to the modest gain posted by the blue chip index.

Bank of America (BAC) was the one of the Dow's strongest performers on the day, posting a gain of 4.6 percent. Despite the strong upward move, the stock remains stuck in a recent range.

Alcoa (AA), General Electric (GE) and Caterpillar (CAT) also rose by considerable margins. While General Electric remained in a recent range, Alcoa closed at its best level in over a month and Caterpillar finished at its best closing price in over six months.

On the other hand, the Dow was limited by shares of American Express (AXP), which fell by 3.8 percent. The day's loss pulled the stock off of its best price in over eight months.

Additional losses were shown by shares of communications giant Verizon, which slipped by 1.6 percent. With the decline, the stock is retreated from a three-month closing high set on Friday.

Verizon reported adjusted second quarter net income of $0.63 per share, compared with $0.67 per share a year earlier. Analysts expected the company to report earnings of $0.63 per share.

Further, Microsoft (MSFT) posted a loss of 1.5 percent, moving off of its highest closing level in over nine months, while Merck (MRK) and Home Depot (HD) fell by more modest margins, offsetting some of their recent gains.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region finished on the upside on Monday. While Japan's benchmark Nikkei 225 Index posted a 1.5 percent gain, Hong Kong's Hang Seng Index rose by 1.4 percent.

The major European markets also ended the day higher after seeing some volatility. The German DAX Index rose by 0.4 percent, while the U.K.'s FTSE 100 Index and the French CAC 40 Index both eked out 0.2 percent gains.

In the bond markets, treasuries pulled back amid supply concern. Subsequently the yield on the benchmark ten-year note closed at 3.713 percent, a gain of 4.3 basis points on the day.

Looking Ahead

Tuesday morning, traders will have a chance to react to quarterly results from Amgen (AMGN) and Manitowoc (MTW), which reported after the closing bell, while also looking to reports from Office Depot (ODP), Valero (VLO) and Viacom (VIA) among others.

Further, Federal Reserve Chairman Ben Bernanke's comments at a town-hall meeting held this weekend are likely to draw some attention, as they will be aired on PBS starting tonight at 6 p.m. ET.

On the economic front, traders will likely keep an eye on the Conference Board's report on consumer confidence in July, with the consumer confidence index expected to edge down to 49.0 from 49.3 in June.

Meanwhile, data on durable goods orders, jobless claims and an advanced reading on gross domestic product for the second quarter are likely to dominate the headlines later in the week.

by RTT Staff Writer

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