MarketView for February 27

Summary

The S&P 500 index ended the day at its highest level since mid-2008 on Monday, extending gains for a third session as oil prices retreated after a recent rally and data pointed to an improving housing market. The S&P 500 and the Nasdaq both eked out gains, while the Dow Jones Industrial Average closed out the day with a small loss.

The S&P 500 has rallied 9 percent since the start of the year. It rose as high as 1,371.94 on Monday, its highest level since June 2008 and topping the previous mark of 1,370.58, a key resistance point, before paring gains. Although the S&P 500 retreated from the day's high, it still marked its highest close since June 2008.

The National Association of Realtors reported that contracts for previously owned homes hit what was almost a two-year high in January.

At the same time, a decline of about 1 percent in the price of oil relieved concerns that high energy prices could hurt the still-fragile economic recovery. Brent crude ended the day down $1.30 at $124.17. Oil's recent rally has been driven by worries over disruptions to Middle East supplies due to sanctions against Iran. Energy companies fell with oil prices. Shares of Exxon Mobil ended the day down 0.1 percent to close at $87.23.

The fourth-quarter earnings period is in the final stretch. As of Monday, 468 S&P 500 companies had reported results, with 63 percent exceeding Street expectations.

Lowe's, the world's second-largest home improvement chain, reported higher-than-expected quarterly sales, and its shares ended the day up 0.7 percent to close at $27.34.

Biotech stocks fell after Dendreon indicated that demand was soft for its high-priced Provenge prostate cancer treatment. The company’s guidance was for low-single-digit sales growth in the first quarter. Dendreon ended the day down 20.5 percent to close at $11.81.

The day’s trading volume was on the low side, with about 6.3 billion shares changing hands on the three major exchanges, a number that was below the daily average of 7 billion shares.

Pending Home Sales at 2-Year High

A report released by the National Association of Realtors on Monday indicated that contracts to purchase previously owned homes was nearly at a two-year high in January, further evidence the housing market was slowly turning the corner.

According to the NAR, its Pending Home Sales Index, based on contracts signed in January, increased 2 percent to 97.0 - the highest reading since April 2010. New contracts generally lead sales by a month or two.

Housing data ranging from home building to resale's have been relatively upbeat, buttressing other signs of underlying economic strength that should help the U.S. recovery better handle rising gasoline prices and a recession in the euro zone.

The housing market is becoming less of a drag on the economy and home construction is expected to add to growth this year for the first time since 2005.

December's pending home sales index was revised to show a much smaller 1.9 percent drop instead of the previously reported 3.5 percent decline. In January, new contracts were up 8.0 percent from their year-ago level.

The rise in last month's index suggested pending home sales would increase for a second consecutive month in February, and it also bodes well for the spring sales season.

The market has been hampered by an oversupply of unsold homes, but the number of both new and previously owned properties for sale has been whittled down in recent months. However, with the foreclosure tide yet to recede and continuing to depress prices, recovery will be a long, drawn-out affair.

 A report due on Tuesday is expected to show that prices in 20 U.S. metropolitan areas tracked by S&P/Case Shiller fell by 0.5 percent in December after declining by 0.7 percent in November.

Pending home sales rose strongly in the Northeast and South, but fell in the Midwest and West.

Keep in mind that not all of the pending sales will go through. Recently existing home sales have been running much lower than pending sales as one third of them fail to close.

Consumer Debt Declines

Households continued to shave debt in the fourth quarter as mortgage balances declined, while there were tentative signs Americans are increasingly willing to spend, according to a report released on Monday by the New York Federal Reserve.

Total consumer debt slipped a modest 1.1 percent from the third quarter of 2011, led down by a 1.6 percent decline in mortgage balances, suggesting households continue to slowly heal from the housing-market collapse and the Great Recession.

Credit inquiries - an indicator of consumer demand - rose 2.7 percent from the previous quarter, and were more than 16 percent above the low hit in early 2010. Aggregate credit card limits were also up, by 3.6 percent. There were also signs that other forms of indebtedness were on the rise, including a slight increase in student loans to $867 billion.

The New York Fed, in its quarterly Household Debt and Credit report, said mortgage originations rose for the first time in three quarters, to $404 billion, suggesting an uptick in appetite among both lenders and borrowers. Yet for all of 2011, mortgage originations were down 3.1 percent from 2010 and were at their lowest level since 2000.

Delinquency rates slipped to a still-high 9.8 percent, while 2.2 percent of mortgages fell into delinquency, in line with a longer-term trend of declines in this measure. Some $1.12 trillion of U.S. consumer debt was delinquent, the report showed.