As soon as there is fear of a stock market correction something good happens and stocks rally. This theme has gone on for a few months now, and it has happened again today.

The release of better-than-expected US consumer confidence and housing market data provided US equity markets with another shot of adrenaline this afternoon; the Conference Board’s consumer confidence index surged to a reading of 54.1 in August, exceeding Bloomberg’s expectations for a rise to 47.9 from an originally reported 46.6 in July.

A separate report revealed that the S&P/Case-Shiller home price index, which tracks the house prices in twenty US cities, declined 15.4% from a year earlier in June – this was the smallest decline since April 2008 and better than Bloomberg’s expectations for a 16.4% drop.

Also contributing to the stock market’s optimism was the re-nomination of US Federal Reserve Chairman Ben Bernanke. ‘Wall Street can rest a little easier,’ said Christopher Rupkey of Bank of Tokyo-Mitsubishi UFJ. ‘Having a new chairman come in at this late date would put the Fed-engineered solution to both the recovery and the exit strategy at risk.’ [1]

In the meantime, a report released this afternoon revealed that the Richmond Fed manufacturing index remained unchanged at a reading of 14 in August, suggesting the rate of expansion in the region’s manufacturing has remained the same. This trailed expectations of a marginal increase, but at least we are not taking a step backwards.

By around 3:30pm (London time), the Dow Jones was trading 42.78 points (+0.45%) higher at 9552.06, while the broader S&P 500 was up by 3.32 points (+0.32%) to 1028.89. The Nasdaq gained 6.94 points (+0.42%) to 1641.72. Investors should be cautious that US stocks were off their earlier highs and beginning to head lower, perhaps on the back of a drop in crude oil prices, which started to erode earlier gains in the energy sector.

October Brent crude was trading around 1.2% lower at $73.39 barrel while October Light Sweet crude (WTI) lost 0.74% to $73.84 a barrel this afternoon. Energy major Exxon Mobil was up by only 0.1% to $71.37 while Chevron was 0.6% higher at $71.2.

In contrast, house builders were among the biggest movers on Wall Street, buoyed by the release of this afternoon’s housing data. Pulte Homes advanced 3.7% to $13.09, D.R. Horton climbed 4.1% to $13.2 and Lennar Corp added 3.9% to $15.14.

Banks were mixed, with Citigroup nearly 1.9% lower at $4.74, while Bank of America and Wells Fargo climbed more than 2% to $17.73 and $27.88, respectively.

Elsewhere, Lowe’s Cos rose 1.4% to $21 after Morgan Stanley upgraded the second-largest US home-improvement chain from ‘equal weight’ to ‘overweight’. [2]

Retailer Big Lots surged 7.9% to $25.92, after its low-cost items helped it attract recession-struck consumers trading down to cheaper brands. The company also forecast full-year profits that were ahead of consensus expectations.

Fast-food company Burger King was also in the headlines, after reporting quarterly earnings that beat analysts estimates. Its shares surged 8.5% to $19.16.

In contrast, Southern Copper fell 1.1% to $28.81 after HSBC cut its rating from ‘neutral’ to ‘underweight’. HSBC said the ‘end of Chinese restocking could weaken copper prices.’ Chemical maker Ashland was another downgrade casualty; its share price fell 1.5% to $36.72 after Susquehanna Financial Group downgraded it from ‘positive’ to ‘neutral’ on the back of valuation grounds.

[1] Source: Bloomberg News (25 August 2009)
[2] Source: Bloomberg News (25 August 2009)

By Anthony Grech, Research Analyst, IG Index.

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