Midday Market Update: Housing and Durable Goods Spark Market

March 25th at 10:00am by Tom Lydon

ETFsU.S. stocks and exchange traded funds (ETFs) rose, sending the Dow Jones Industrial Average to a five-week high in morning trading as new home sales and an unexpected growth in orders for durable goods spurred speculation of an economic recovery.

Plummeting home prices and cheaper mortgage rates lured some investors and home buyers sending new home sales up 4.7% in January. The median sales price fell 18% from February 2008, the biggest year-on-year drop since 1964, states Shobhana Chandra of Bloomberg. This is a step in the right direction, but an uphill battle must still be fought. Take a look at the SPDR Homebuilders (XHB), up 6% in intraday trading

To add to the rally, orders for durable goods unexpectedly jumped 3.4% on a rebound in demand for machinery, computers and defense equipment. Additionally, demand for non-defense capital goods excluding aircraft, a good indicator for future business investment, climbed 6.6% after declining 11.3% the prior month. This is a far cry from the expected decline in durable goods of 2.5% by many top analysts.

This jump in durable goods orders may be good news for GDP. Many economists believe that the economy will contract a whopping 5.2% in the first three months of 2009 and 2.5% for the remaining of the year, states Courtney Schlisserman of Bloomberg. Additionally, this increase may be indicative of the loosening of credit markets, which will be a move in the right direction for an economic recovery.

On a separate note, crude oil fell 2.2%, to $52.82 a barrel in early morning trading on speculation that a government report will show U.S. inventories gained while demand for energy tumbled. In fact, U.S. crude oil stockpiles increased 4.58 million barrels last week, sending the number to its highest levels since 1993. To add fuel to the fire, a damper on industrial production and warmer global weather has hindered fuel demand. U.S. Oil (USO), is down about 1% in intraday trading.

Lastly, the battle on Capitol Hill begins while the Senate and House determine how much they want to spend and tax in 2010. President Barack Obama’s $3.6 trillion budget will frame the debate, as will the Congressional Budget Office’s analysis of his budget. One debate is over the president’s optimistic economic forecast, which is far more optimistic than the Congressional Budget Office’s. Republicans and many other officials would like to see the plan push annual deficits to below 2% of GDP as opposed to 4%-5% of GDP, as estimated with the current plan, states Jeanne Sahadi of CNN Money.

All the major indexes were in positive territory this morning.  The S&P 500 was up about 2%, the Dow Jones Industrial Avearage was up about 2.2% and the Nasdaq Composite was up about 2.1%.  For every one stock that fell, ten rose.

Kevin Grewal contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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