Markets surge on home sales data, weak dollar

A report of better than expected housing data and a weak dollar sent major stock indexes soaring Monday. The Dow Jones industrial average rose 1.5% and the Standard & Poor's 500 jumped 1.7% in early morning trading before retreating a bit before the close. The broad rally ended the market's three-day slide from last week and had traders wondering if investors were confident enough to return to the equity markets in droves.

The Dow Jones industrial average ($INDU) rose 132.79, or 1.29%, to 10,450.95. The Standard & Poor's 500 index rose ($INX) 14.86, or 1.36%, to 1,106.24, while the Nasdaq ($COMPX) composite index rose 29.97 or 1.4%, to 2,176.01.
The National Association of Realtors reported that home sales surged to their highest levels in two and a half years in October, up 10.1%. Analysts had predicted an increase of only 1.4%. A rush of buyers taking advantage of the first-time home buyers' tax credit before it was set to expire in November contributed to the housing boost.

Lawrence Yun, chief economist for NAR, suggested November housing numbers could be similarly strong, and the recent extension of the tax credit into 2010 gave investors confidence that housing could get a boost next year too. Yun said after the sales spike in October and November, "a measurable decline should be anticipated in December and early next year before another surge [in sales] in spring and early summer."

Shares of home builders jumped on the housing news. D.R. Horton (DHI) was up 2% to $10.58 a share, M/I Homes (MHO) was up 2.8% to $11.76 and Beazer Homes (BZH) was up 1.9% to $4.81.

Investors also reacted to the dollar, which fell 0.7% , pushing commodities and the stocks of companies that produce them higher. Oil prices rose to $77.70 a barrel and gold climbed to yet another record high of $1,174 and ounce in afternoon trading before closing at $1,165.30.

While the housing numbers suggest the economy may be getting better, the dollar's weakness has many worrying that the economy may be headed for a relapse.

Phil Orlando, chief market strategist for Federated Investors told the Associate Press that there was about $2 trillion of cash still sitting on the sidelines waiting to find its way back into the markets, so each time there is a losing streak like last week, investors will look to jump back in and buy on the dips.

"That is why any pullback we've seen this year has been met with a wave of cash that has pushed stocks up higher," he said. That's a trend some believe will last as long as economic numbers continue to show signs of improvement.
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