Stocks rally anew
Surprisingly strong housing report is one factor as U.S. markets rise for 5th time in 6 sessions.
NEW YORK (CNNMoney.com) -- Stocks surged Tuesday, with the major stock gauges ending higher for the fifth out of six sessions, as investors continued to dig out from 12-year lows.
A better-than-expected housing market report released Tuesday gave investors a reason to cheer. But the advance over the past week has been largely a rebound after all the selling, said John Merrill, chief investment officer at Tanglewood Wealth Management.
"The decline markets endured between the middle of January and the middle of March was like a rubber band pulled tighter and tighter with each new low," he said. "It was at such an extreme that it had to snap back at some point."
Between Jan. 6 and March 9, the S&P 500 slumped nearly 28%, ending at a 12-1/2 year low. Merrill said that level was "an important low, but probably not the final low." Nonetheless, he said stocks could ultimately rise 20% or more off those lows before hitting a wall.
Since March 9, stocks have gained in five of six sessions, with the S&P 500 rising 15% as of Tuesday's close.
In addition to the technical factors causing the advance, the rally was in reaction to a few pieces of better news, including Tuesday's housing report and last week's February retail sales report.
Citigroup and other banks said they were profitable in the first two months of the year, helping the financial sector. Banks also got a boost from talk about reinstating the "uptick rule" that limits short selling and changing mark-to-market accounting.
"It's not surprising that after selling off aggressively, the market is now looking for some signs of stability," said Alan Gayle, director of asset allocation at RidgeWorth Investments.
However, he said investors need to be cautious, as a few better-than-expected economic reports doesn't change the overall picture, which remains tough.
"This is very much a bear market rally and I think most people agree that at some point, we are going to need to retest those lows," said Drew Kanaly, chairman and CEO of Kanaly Trust Company.
"At some point we are going to have to start looking at the earnings and that's probably the next turning point," he said.
First-quarter earnings reports - which will start trickling out next month - are expected to be weak across the board. He said that the earnings will probably cause the markets to retest those recent lows. However, that should give Wall Street a better sense of where the market is likely to find a floor, paving the way for a bigger stock advance.
Company news: Financial stocks gained, including Citigroup (C, Fortune 500), JPMorgan Chase (JPM, Fortune 500), Goldman Sachs (GS, Fortune 500) and Wells Fargo (WFC, Fortune 500). The KBW Bank (BKX) sector index added 6%.
Alcoa (AA, Fortune 500) shares slumped 8.7% after the company announced late Monday that it will cut its dividend, issue stock and convertible notes worth about $1.1 billion and cut its spending in 2010.
Caterpillar (CAT, Fortune 500) said it is laying off over 2,400 more employees at five plants in Illinois, Indiana and Georgia so as to save costs amid the economic slowdown. Shares of the Dow component ended 1.5% higher.
AIG (AIG, Fortune 500) remained in focus amid growing fury that the company paid millions in bonuses to executives, even as the company received $170 billion in federal bailout money. President Obama has said he will try to block the bonuses. AIG's CEO Edward Liddy will go before a House panel Wednesday that is probing the government's involvement in the troubled insurer.
Market breadth was positive. On the New York Stock Exchange, winners beat losers by almost four to one on volume of 1.49 billion shares. On the Nasdaq, advancers beat decliners by over three to one on volume of 2.13 billion shares.
Economy: Construction of U.S. homes jumped in February, surprising economists who were expecting a decline.
Housing starts rose to a seasonally adjusted annual rate of 583,000 in the month, up 22% from a revised 477,000 in January. Housing starts haven't risen month-over-month since last June. Economists surveyed by Briefing.com expected starts to have fallen to a 453,000 annual unit rate.
Building permits, a measure of builder confidence, rose 3% to a seasonally adjusted rate of 547,000 versus forecasts for a drop to 500,000.
Another government report, the Producer Price Index (PPI), showed a smaller-than-expected rise. PPI, a measure of wholesale inflation, rose 0.1% in February after rising 0.8% in January. Economists thought it would rise 0.4%.
The so-called core PPI, which strips out volatile food and energy prices, rose 0.2% after climbing 0.4% in the previous month. Economists thought it would increase 0.1%.
In other news, the Federal Reserve holds its latest policy meeting Tuesday and Wednesday. The central bank is expected to hold the fed funds rate, its key short-term interest rate, essentially at zero. But the bank could declare it will start buying long-term U.S. Treasurys after saying it was prepared to do so at its last few meetings.
New legislation was introduced Monday night to reinstate the "uptick rule," adding to pressure on the Securities and Exchange Commission. The SEC meets April 8 to discuss restoring the rule. Critics have claimed that the rule's absence has exacerbated stock selling in the financial sector.
Bonds: Treasury prices tumbled, raising the yield on the benchmark 10-year note to 3.01% from 2.95% Monday. Treasury prices and yields move in opposite directions.
Lending rates were improved. The 3-month Libor rate fell to 1.3% from 1.31% Monday, while the overnight Libor rate dipped to 0.31% from 0.33%, according to Bloomberg.com. Libor is a bank-to-bank lending rate.
Other markets: In global trading, Asian markets ended mixed and European markets declined.
In currency trading, the dollar fell versus the euro and gained against the yen.
U.S. light crude oil for April delivery rose $1.81 to settle at $49.16 a barrel on Monday.
COMEX gold for April delivery fell $5.20 to settle at $916.80 an ounce.