MarketView for February 26

Summary

The major equity indexes rebounded from their worst decline since November on Tuesday after Federal Reserve Chairman Ben Bernanke defended the Fed's bond-buying stimulus and sales of new homes hit a 4 1/2-year high. Bernanke, in testimony on Tuesday before the Senate Banking Committee, strongly defended the Fed's bond-buying stimulus program and quieted rumblings that the central bank may pull back from its current policy, which were sparked by the release of the Fed minutes last week.

Bernanke's comments helped ease investors' concerns about a stalemate in Italy after a general election failed to give any party a parliamentary majority, posing the threat of prolonged instability and financial crisis in Europe, and sending the S&P 500 to its worst decline since November 7 in Monday's session.

However, the central bank chairman also urged lawmakers to avoid sharp spending cuts set to go into effect on Friday, which he warned could combine with earlier tax increases to create a "significant headwind" for the economic recovery.

Homebuilding stocks were stronger, along with other consumer stocks, following strong economic data that lifted the S&P 500, and sent Home Depot’s shares up 5.7 percent to $67.56. Home Depot (HD.N) gave the biggest boost to the Dow and provided one of the biggest lifts to the S&P 500 after the world's largest home improvement chain reported adjusted earnings and sales that beat expectations.

Macy's shares gained 2.8 percent to end the day at $39.59 after the department-store chain stated it expects full-year earnings to be above analysts' forecasts because of strong holiday sales.

Economic reports indicating strength in housing market in combination with consumer confidence reports, contributed to the day’s euphoria. Home prices rose more than expected in December, according to the S&P/Case-Shiller index. Consumer confidence rebounded in February, jumping more than expected, and new-home sales rose to their highest in 4-1/2 years in January.

Despite the bounce, the S&P 500 was unable to move back above 1,500, a closely watched level that was technical support until recently, but could now serve as a resistance point.

The CBOE Volatility Index, a barometer of investor anxiety, fell 11.2 percent, a day after surging 34 percent, its biggest percentage jump since August 18, 2011.

The uncertainty caused by the Italian elections continued to weigh on stocks in Europe. The FTSEurofirst-300 index of top European shares closed down 1.4 percent, while the benchmark Italian index was down 4.9 percent.

Volume was active with about 7.08 billion shares changing hands on the three major equity exchanges, a number that was well above the daily average of 6.48 billion shares.