Equities Rally On Economic Data; Europe Rises On Retailer Boost

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

US equities advanced today, sending the S&P 500 to its highest level since December 2007 as better-than-forecast housing data and initial jobless claims offset mixed corporate results.

The boost came after the Commerce Department reported a sharp rise in the number of new homes being built in December. Housing starts vaulted 12.1 percent last month, the biggest rise since June 2008.

Investors also welcomed news that first time for unemployment benefits fell to a four-year low last week. The Labor Department said jobless-benefit applications dropped by 37,000 to 335,000 last week, the lowest level since January 2008.

Both the results exceeded investor expectations rather handily and gives a welcome reprieve from the continued political gridlock in Washington.

A separate report however showed manufacturing in the Philadelphia region contracted unexpectedly in January. The Philly Fed Business Outlook Survey turned negative, indicating industries are becoming more concerned about the US government spending cuts that could hinder growth.  Of course, as was to be expected, bad news was simply ignored as the indexes were propelled towards even loftier levels.

House Republicans are considering of a short-term increase in the US debt ceiling, Budget Committee Chairman Paul Ryan told reporters. This will allow for time to debate reduced government spending, the Wisconsin Republican told reporters at a press conference Thursday.

The Dow Jones Industrial Average (DJIA) closed 85 points higher, paring an initial 122-point surge. Home Depot was the top gainer on the Dow, while Toll Brothers and PulteGroup both added more than 3 percent.

The S&P 500 Index (SPX) rallied 8 points to 1481, its highest close since December 26, 2007. All 11 companies in a gauge of home builders in S&P indexes gained.

Treasury prices dropped Thursday, pushing yields higher for the first day in five as better than expected jobless claims and housing starts boosted claims that economic recovery is allegedly strengthening.

The US dollar declined Thursday as solid demand from investors at a Spanish debt auction indicated easing of worries about the eurozone, while robust economic data from the US boosted investor confidence further.

European shares gained the most in a week after a round of strong corporate earnings from retailers combined with a late nudge from upbeat US economic data pushed stocks to a higher close Thursday.

In the ETF space, energy and commodity-linked funds, with the exception of grains, rallied Thursday. The United States Gas Fund (UNG) surged 1.58 percent while the United States Oil Fund (USO) added 1.14 percent as crude futures picked up 1 percent in today’s trade.

Both industrial and precious metals were in focus as well. The DJ-UBS Copper ETN rose 1.23 percent while the iShares Silver Trust (SLV) and the SPDR Gold Trust (GLD) added 0.72 percent and 0.43 percent respectively.

The Dow Jones US Home Construction Index Fund (ITB) was one of the biggest gainers for the day, surging 2.71 percent after a Commerce Department report revealed US housing starts rose 12.1 percent in December. The State Street SPDR Homebuilders ETF (XHB) also surged, adding 1.85 percent for the day.

Our Trend Tracking Indexes (TTIs) joined the exuberance and closed the day at +3.01% for the Domestic TTI and +10.49% for the International TTI.

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