Bear deal and home sales push U.S. stocks higher
Stock markets soared Monday on Wall Street after a higher offer seemed to salvage a bailout of the investment bank Bear Stearns and investors received a lift from an unlikely source: the housing market, which snapped a six-month streak of declining sales.
The Dow Jones industrials gained more than 240 points Д its second consecutive triple-digit advance Д as investors cheered both developments, which offered band-aids to two of the economys most beaten-up sectors.
Shares of big builders like Lennar and D.H. Horton rose and financial services firms gained, sending the broad Standard Poors 500-stock index up more than 2 percent. The tech-heavy Nasdaq composite index rose 3.3 percent.
Treasury yields rose as investors moved out of ultra-safe government bonds, a sign that some confidence may have re-entered the financial markets. Agricultural commodities surged, with wheat gaining more than 4 percent, after falling last week. The price of crude oil dipped slightly to $101.60, and the dollar gained against the euro.
But the resurgence may be short-lived: the Dow has swung more than 2 percent for four consecutive trading sessions, an enormous amount of volatility.
Indeed, each of the days developments came with a caveat. The $10-a-share deal for Bear Stearns, which has the support of the Federal Reserve, will allow JPMorgan Chase to take over the beleaguered investment bank despite a shareholder revolt that threatened to run the deal off the rails. Bear Stearns stock skyrocketed to $12.44 a share, and JPMorgan shares rose 3 percent.
The deal was received last week as a sign the Fed was finally finding a way to restore confidence in the credit markets. But the fact that a major investment bank effectively failed underscored anxieties on Wall Street that the current financial crisis may be one of the worst in decades.
On the housing front, sales of previously owned homes unexpectedly rose in February, ending a six-month losing streak and offering some relief to owners who had watched sales fall to record lows in recent months.
But home prices continued to plunge Д in February, they had their worst year-over-year drop since records began Д and economists warned that the 2.9 percent sales increase may not signal an end to the housing slump.
Existing-home sales, which make up most of the American housing market, advanced to a seasonally adjusted 5.03 million annual rate, up from 4.89 million in January, according to the National Association of Realtors, a trade group.
But the median price of a previously owned home declined in February to $195,900, an 8.2 percent drop from the period a year earlier.
Inventories, which ballooned in the last year, fell back slightly in February, with the backlog of unsold homes declining 3 percent to 4.03 million units, a 9.6-month supply at the current sales rate. The supply of single-family homes fell but the backlog of condominiums and co-op apartments rose.
“Inventories are very high relative to sales rates, and would probably be even more so if all those wishing to sell their home actually had the house on the market,” wrote Joshua Shapiro, chief United States economist at MFR, a New York research firm. “While price declines seen so far represent a reasonable start, we still have a long way to go.”
In another positive development for the housing industry, a major government-backed mortgage lender received permission to purchase $150 billion in mortgage-backed bonds guaranteed by Fannie Mae and Freddie Mac, a move that may make it easier for Americans to take out home loans.
The decision came a week after Fannie and Freddie announced that their own regulator had freed up an additional $200 billion for the same purpose.
