A more confident consumer translated into a rallying stock market Tuesday as JPMorgan Chase and American Express paced a nearly 200-point jump in the Dow Jones Industrial Average, with a flood of consumer stocks going along for the ride.
With the Conference Board saying its index of consumer confidence for May jumped to its highest reading since September, investors pushed into nearly every sector. Financials were led by JPMorgan Chase, up 2.13, or 6.2%, to 36.54, and American Express, up 1.17, or 5%, to 24.57.
Notably, market veterans say the improvement in consumer confidence has already been felt in the equities market as portfolio managers' biggest concern in 2008 -- massive redemptions -- has nearly vanished. In a Tuesday report, Barclays Capital and Investment Company Institute said that since bottoming in the beginning of March, inflows into equity funds have picked up in the past nine weeks, with $16.2 billion going into long-term mutual funds in its latest weekly report.
"There is a positive correlation between consumer confidence and market confidence," says Quincy Krosby, chief investment strategist for Hartford Financial Services. She noted the fact "that there isn't a flood of money coming makes a big difference."
Overall, the Dow Jones Industrial Average gained 196.17 points, or 2.37%, to 8473.49, snapping a four-day losing streak. The index, which had its biggest point and percentage gain since May 18, is off 6.2% from its 2009 closing high of 9035, hit on Jan. 2.
Among other indices, the Standard & Poor's 500 index rose 23.33, or 2.63%, to 910.33, also snapping a four-day losing streak. Every sector in the S&P 500 traded in the green, with financials and consumer discretionaries pacing the move.
Home builders were particularly strong, with D.R. Horton tacking on 46 cents, or 5.1%, to 9.47. Other consumer stocks moving higher included Tiffany, up 1.67, or 6.3%, to 28.09, and Host Hotels & Resorts, up 81 cents, or 9.9%, to 9.01.
In addition, Polo Ralph Lauren gained 4.36, or 8.7%, to 54.38, ahead of its quarterly report on Wednesday.
Technology started out strong even before release of the consumer confidence figure, and it stayed higher, with the Nasdaq Composite Index closing up 58.42 points, or 3.45%, to 1750.43. The Nasdaq marked its highest close since May 6.
Still, not all the economic news was rosy. The S&P Case-Shiller home-price indexes showed that prices continued to tumble in March, as 15 of 20 major metropolitan areas showed price declines of more than 10% from a year earlier.
Ahead of reports later in the week on existing- and new-home sales, David Resler, chief economist for Nomura Securities International, said he believes the housing market has seen the bottom in terms of production. More broadly, he said the economy is nearing the end of its decline, but cautioned he expects depressed levels of economic growth for a while.
"We need to have stability in the housing market in both prices and production before the economy can look optimistically to a future of growth," said Resler.
Volume was relatively light following the Memorial Day holiday with the activity dominated by high-frequency traders. These traders noted paltry short-covering during Tuesday's gains could be a positive sign for the rest of the week.
A possible Achilles' heel for the rally Tuesday was that consumer confidence was alone in spurring it, with Hartford's Krosby cautioning that weekly and monthly reports continue to point to still-weak labor markets.
"If the unemployment rate takes an unexpected leap, that same individual with boosted confidence is now going to cash out," she said.
Helping lift the Nasdaq, Apple (Nasdaq) jumped 8.28, or 6.8%, to 130.78. Morgan Stanley boosted its rating on the technology giant to overweight from equal-weight saying the iPhone "is feeding earnings growth that the market is missing."
First Solar (Nasdaq) fell 12.21, or 6.4%, to 179.51, after FBR Capital Markets analyst Mehdi Hosseini said the solar-power modules maker's stock will be pressured by the decline in polysilicon prices amid weak demand in Europe.
Also rising in the consumer sector, Wendy's/Arby's Group gained 22 cents, or 5.2%, to 4.42, as it said it will open more than 35 Wendy's locations in Singapore over the next decade as the fast-food chain continues to expand outside of North America.
Shares of mining-equipment companies Joy Global (Nasdaq), up 3.07, or 11%, to 32.30, and Bucyrus International (Nasdaq), up 2.13, or 8.9%, to 25.96, climbed as KeyBanc upgraded both stocks, saying a climb in commodity prices should eventually pull companies back to the mine shafts.
Analysts at JPMorgan raised their rating on multimedia company Qwest Communications International to overweight from neutral, citing "relatively strong enterprise revenue trends, conservative guidance, upside from potential M&A, as well as an attractive valuation." Qwest closed up 32 cents, or 8%, at 4.33.
Bucking the trend of strong financials, Regions Financial Corp. slid 21 cents, or 5.2%, to 3.83
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