MarketView for November 19

Summary

The major equity indexes moved sharply higher for a second consecutive session on Monday, due in large part to a more congenial atmosphere surrounding the talks of how to tackle the nation's fiscal crunch.

Stronger-than-expected earnings from Lowe's and Tyson Foods, as well as encouraging housing data, also contributed to the market's advance. Tyson and Lowe's were the top two percentage gainers on the S&P 500.

The S&P 500 is up more than 2 percent in the last two sessions as rhetoric from legislators over the weekend suggests a deal could be reached to stave off the looming "fiscal cliff," a series of tax and spending changes that will begin to take effect in the new year. The two sides are still far apart in negotiations, however.

The benchmark S&P index had fallen 5.3 percent between Election Day and Friday's rebound, as investors took the opportunity to sell stocks - including some of the year's best performers - just in case Washington cannot come to an agreement and taxes on dividends and capital gains rise in 2013.

However, the rebound could be a short-lived reprieve from the sharp declines and market volatility could still rise, depending on progress in negotiations. A number of sectors were considered oversold on a technical basis - suggesting a buying opportunity.

Monday's advance marked the biggest percentage gain for the S&P 500 since November 6, when the European Central Bank announced a new bond-buying program aimed at containing the region's debt crisis.

Shares of Lowe's were up 6.2 percent to $33.96 to hit a 52-week high after the company reported higher-than-expected quarterly profit and raised its full-year sales forecast. Home improvement chains tend to benefit as housing strengthens. Home re-sales unexpectedly increased in October, while separate data showed homebuilder sentiment rose to its highest level in over six years in November.

The S&P edged above its 200-day moving average at around 1,382, which has acted as a resistance level since a drop below the technically significant mark on November 8.

Tyson Foods exceeded expectations as management provided an upbeat forecast, resulting in the company’s share price ending the day up 10.9 percent to close at $18.72. Intel moved a bit higher, up 0.3 percent to $20.25 after the company said its chief executive will retire in May.

Commodities prices rose sharply, sending shares of resource companies higher. Freeport-McMoRan rose 4.1 percent to $38.28, while U.S. Steel was up 5.3 percent to close at $21.15. The S&P materials sector advanced 2.9 percent as the best performing of the 10 major S&P sectors.

Volume was light and is expected to remain so throughout the Thanksgiving Day holiday-shortened trading week, with about 6.14 billion shares changing hands on the three major equity exchanges, a number that is well below the daily average of 6.49 billion shares.

Housing Gains Traction

Sales of previously owned homes moved higher during October and a gauge of homebuilder sentiment hit a six-year high in November, all of which was good news for the country's still-struggling housing market. According to the National Association of Realtors existing home sales were up 2.1 percent in October, to a seasonally adjusted annual rate of 4.79 million units.

Separately, the rising demand for new homes drove an increase in a monthly measure of home builder sentiment, which hit a more than six-year high in November. Rising home prices and a faster pace of sales have shown the housing market has finally turned the corner this year. The market collapsed when a mortgage debt bubble burst in 2006, helping trigger the 2007-09 recession. The data on Monday suggested the recovery in housing is advancing even faster than many analysts had expected.

The reports also support the view that the broader economic recovery is becoming increasingly self-sustaining, with job creation helping drive home sales, which in turn are supporting economic growth. Home building is expected to add to economic growth this year for the first time since 2005.

The housing data also suggested that super storm Sandy, a mammoth storm that slammed into the U.S. East Coast on October 29, continues to distort economic data. The Northeast was the only region in the country where the pace of sales fell. NAR economist Lawrence Yun said Sandy would likely leave a bigger mark in November and December, although he expected the impact would only be temporary.

The storm, which killed more than 130 people in the United States and left millions of homes and businesses without electricity, led U.S. factories to cut production in October. It also weighed on auto sales as consumers stayed away from showrooms.

Economists, however, think Sandy's impact on the economy will be temporary. Indeed, not all of the impact is negative. Home improvement retailer Lowes reported higher-than-expected profits on Monday as its sales got a lift from people buying items like generators, flashlights and batteries ahead of Sandy.

The housing data showed that home prices continue to rebound. In October, the median price for an existing home was $178,600, up 11.1 percent from a year earlier.

Supporting prices, fewer people sold their homes under distressed conditions, which include foreclosures, compared to the same period in 2011. Also, the nation's inventory of existing homes for sale fell 1.4 percent during the month to 2.14 million, the lowest level since December 2002. The shrinking supply of distressed and foreclosed inventory helped push U.S. homebuilder sentiment up for a seventh consecutive month in November.

The National Association of Home Builders said its sentiment index rose to 46 -- the highest since May 2006 -- from 41 the month before. However, the gauge remained below 50, a reminder that the housing market was still some way off full recovery. Readings below 50 mean more builders view market conditions as poor than favorable. The index has not been above 50 since April 2006.