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Stocks Finish Substantially Higher Amid Encouraging Housing Data - U.S. Commentary

After a notably lower close in the previous session, stocks rallied on Monday, bolstered by hopes about the housing market. The major averages all closed at their best levels of the day.

Traders considered a report from the National Association of Home Builders that said its index of homebuilder sentiment rose to 16 in May, compared to a level of 14 in April. The figure was the best reading since September, fueling speculation that the housing sector is bottoming and economic recovery may be around the corner.

Further, the report indicated that attitudes of home builders improved for both the present situation and for the next several months.

Housing and housing related stocks rallied on the data, being bolstered further by better-than-expected earnings from home improvement retailer Lowe's (LOW). The company announced first-quarter net income of $0.32 per share, beating out Wall Street analyst estimates of $0.25 per share. Shares advanced on the heels of the earnings report, climbing away from a six-week low set on Friday.

Traders will also consider earnings from Home Depot, Inc. (HD), scheduled to release financial results for the first quarter on Tuesday.

Analysts project the number one U.S. home improvement retailer will report earnings of $0.29 per share, sharply lower than last year's $0.41 per share, with 11.4 percent anticipated decline in sales.

Wall Street now turns its attention to the Commerce Department data on housing starts for April. The headline housing starts figure is expected to climb to 527,000 from March's figure of 510,000. The report is also expected to show building permits at 530,000 for April up from previous month's level of 516,000.

Although the figures are expected to rise, economists are still uncertain that a trough has been reached. According to Wachovia Securities, housing starts may hover around the half-million mark for one more month before beginning to slowly climb in the second half of the year.

In other economic news, Treasury Secretary Timothy Geithner commented that although the economy is stabilizing, there are still some difficulties ahead. In an early afternoon interview, Geithner stated that "Even as growth starts to turn positive, which will happen...it's not going to feel better for a long time for millions of Americans."

The Federal Reserve continued its treasury buyback program this morning, part of its quantitative easing efforts. The New York arm of the Federal Reserve purchased $3.18 billion worth of securities with maturity dates ranging from August of 2019 to February of 2026. The day's buyback attracted strong interest, with a total of $15.22 billion in treasuries submitted for the purchase.

With the purchase, the government has bought back $107.87 billion in treasuries since the purchase program began on March 25th.

The major indices closed prominently higher, with the Dow closing up 235.44 at 8504.08, the Nasdaq finishing up 52.22 at 1732.36, and the S&P 500 closing higher by 26.83 at 909.71.

Sector News

Most sectors finished notably higher, helping the major averages to a strong rally on the day.

Notable strength in real estate stocks contributed to the day's gains, with the Morgan Stanley Real Estate Index climbing by 8.8 percent on the session. With the advance, the index continued its climb away from a one-month low posted late last week.

Meanwhile, housing stocks turned in one of the day's best performances, as reflected by the 6.5 percent gain posted by the Philadelphia Housing Sector Index. With the advance, the index moved further away from a one-month closing low it set last week.

Significant strength was also visible among banking and steel stocks, with the Kbw Banking Sector Index and the Amex Steel Sector Index finishing up by 7.5 and 7.1 percent, respectively.

The day's gains were slowed by the pullback in gold stocks, with the Amex Gold BUGS Index dropping by 0.4 percent. The move comes as the price of gold futures plummeted by more than $11 on the day.

Dow Components

A majority of the Dow components finished in positive territory, contributing to the triple-digit gains posted by the blue chip index on the session.

Bank of America (BAC) turned in the Dow's best performance, with the banking services provider closing up by 9.9 percent. The stock benefited from an upgrade by Goldman Sachs, which switched its rating from Neutral to Buy. Shares of Bank of America moved away from a 10-day low set late last week.

Shares of Home Depot (HD) rose by 6.6 percent on the day. With the climb, the stock has reached a 12-day high.

Meanwhile, shares of General Motors (GM), American Express (AXP) and JP Morgan Chase (JPM) also bolstered the Dow.

On the other hand, AT&T (T) was the only Dow component in the red, falling by 1.1 percent on the day.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region finished largely mixed on Monday. Japan's benchmark Nikkei 225 Index fell by 2.4 percent, while Hong Kong's Hang Seng Index climbed 1.3 percent.

General market sentiment has picked up as India's Congress Party won a decisive victory in recent elections, raising prospects of stability and likelihood of economic reform in the world's most populated democracy.

The benchmark index for the Indian market closed up by 17.3 percent on the day following election news.

Shares of Indian based firms also rose in U.S. trading, with Wipro (WIT), Dr. Reddy's Laboratories (RDY) Sify Technologies (SIFY), ICICI Bank (IBN), Tata Motors (TTM) and HDFC Bank (HDB) all climbing on the day.

Meanwhile, the major European markets all closed higher on the day. The French CAC 40 Index and the German DAX Index closed up 2.4 percent, while the U.K.'s FTSE 100 Index finished up by 2.2 percent.

In the bond markets, treasuries closed in firmly negative territory amid the rally in the stock market. Subsequently, the yield on the benchmark ten-year note closed up 8.8 basis points at 3.211 percent.

Looking Ahead

Later this week, traders will look to the results of the Philadelphia Fed's manufacturing survey for May and the Conference Board's leading indicators for April. The market will also focus on a the regularly scheduled jobless claims, oil inventory reports and the last leg of earnings.

Investors will look to reports from Hewlett-Packard (HPQ), Home Depot (HD), Target (TGT), Campbell Soup (CPB), and Deere (DE), set to release their quarterly results this week.

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