Economic News Sends Stocks Soaring

Ben Bernanke was right. The economy really is getting better. Tuesday’s economic news brought us five reports – all of which beat economists’ expectations.

The day began with the Census Bureau’s Advance Report on Durable Goods Orders for May, which indicated a 3.6 percent increase for the month, beating expectations for a 3.3 percent rise. The 20-city composite of the S&P/Case-Shiller Home Price Index for April was expected to increase by 10.9 percent on a year-over-year basis. It actually jumped by 12.1 percent. Similarly, the Census Bureau’s report on New Home Sales for May was expected to indicate a Seasonally Adjusted Annual Rate (SAAR) of 460,000 new home sales in May from 454 thousand in April. The report contained an upward revision of the April total to a whopping 466,000 and an even better indication of 476,000 new home sales for May.

The Conference Board’s Consumer Confidence Index was the shocker of the day. Economists were expecting the index to decrease to 75.0 in June from May’s 76.2. Instead, the index increased to an astounding 81.4 – its highest reading since January of 2008, when it was 87.3.

Finally, the Richmond Fed’s Fifth District Survey of Manufacturing Activity for June was the fourth regional Federal Reserve economic report for the month which beat expectations. Although economists were expecting the reading to increase to positive 2 from May’s negative 2, the Richmond Fed’s composite Index of Manufacturing Activity for June jumped to eight! (Jeffrey Lacker must have tipped off the Chairman about that one.)

The Dow Jones Industrial Average (DIA) gained 100 points to finish Tuesday’s trading session at 15,303 for a 0.69 percent advance. The S&P 500 (SPY) climbed 0.95 percent to close at 1,588.

The Nasdaq 100 (QQQ) advanced 0.64 percent to close at 2,866. The Russell 2000 (IWM) jumped 1.07 percent to close at 961.

In other major markets, oil (USO) advanced 0.24 percent to close at $33.72.

On London’s ICE Futures Europe Exchange, July futures for Brent crude oil advanced by 11 cents (0.11 percent) to $101.27/bbl. (BNO).

August Gold Futures declined by $1.50 (0.12 percent) to $1,275.60 per ounce (GLD).

Transports rocketed skyward on Tuesday, with the Dow Jones Transportation Average (IYT) surging 1.91 percent.

In Japan, stocks weakened as the yen rose to 97.3 per dollar before Tuesday’s closing bell in Tokyo. A stronger yen causes Japanese exports to be less competitively priced in foreign markets (FXY). The Nikkei 225 Stock Average fell 0.72 percent to 12,969 (EWJ).

The People’s Bank of China announced that it will loosen its monetary policy to resolve the liquidity squeeze which escalated interbank lending rates in the nation. The PBOC also admitted that it had provided liquidity injections to some of the nation’s major banks last week. The Shanghai Composite Index pared Tuesday’s decline to only 0.18 percent for a close at 1,959 (FXI). Hong Kong’s Hang Seng Index advanced 0.21 percent to 19,855 (EWH).

European stocks enjoyed a relief rally following the good news from China (VGK). The Euro STOXX 50 Index finished Tuesday’s trading session with a 1.26 percent surge to 2,543 – remaining below its 200-day moving average of 2,633. Its Relative Strength Index is 31.71 (FEZ).

Technical indicators reveal that the S&P 500 remains below its 50-day moving average of 1,618 after closing at 1,588. Bears are anticipating a further decline to the 200-day moving average of 1506. Its Relative Strength Index rose from 36.90 to 41.55. The MACD remains below the signal line and has crossed far below the zero line to negative 9, suggesting the likelihood of a decline.

For the day, all sectors were in positive territory, while the financial sector took the lead with a gain of 1.86 percent. The consumer staples sector was the laggard, advancing only 0.17 percent.

Consumer Discretionary (XLY): +0.92%

Technology: (XLK): +0.83%

Industrials (XLI): +1.12%

Materials: (XLB): +0.60%

Energy (XLE): +1.29%

Financials: (XLF): +1.86%

Utilities (XLU): +1.31%

Health Care: (XLV): +0.51%

Consumer Staples (XLP): +0.17%

Bottom line: Tuesday’s five economic reports were just what investors needed to bolster their wavering confidence as to whether the American economy can survive without the Fed’s liquidity pump churning out $86 billion per month.

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