MarketView for November 28

Summary

Share prices were up sharply on Wednesday after comments from House Speaker John Boehner indicating that there could possibly be a compromise in the offing that would avoid the "fiscal cliff." Needless to say, that sort of talk was music to the ears of Wall Street. As a result, the S&P 500 index rebounded from a one percent decline, gaining more than 20 points from its low after Boehner, an Ohio Republican, said he was optimistic that a budget deal to avoid big spending cuts and tax hikes can be worked out. President Barack Obama added to the good feelings, saying he hoped to get a deal done in the next four weeks. Whether or not those remarks reflect the reality of negotiations is another story.

In expectation of higher dividend tax rates in 2013, companies have been shifting dividends or announcing special payouts to shareholders. Costco Wholesale, up 6.3 percent at $102.58, was the S&P 500's largest percentage gainer after it became the latest company to announce a special dividend. The market's move marked the second straight day where a leading legislator dictated trading action. On Tuesday, stocks fell on pessimistic remarks from Senate Majority Leader Harry Reid, a Democrat from Nevada.

The market has been swinging for weeks now on headlines from Washington, with Wednesday's gyrations once again highlighting the importance that Wall Street is giving to finding a solution to avoid the series of tax increases and spending cuts that could push the U.S. economy into recession. The S&P 500 bounced off a strong support area near 1,385 that includes both its 200- and 14-day moving averages. It closed above 1,400 for the third session in four - an optimistic sign for stock bulls.

Knight Capital rose 15.2 percent to $3.42 on news that Getco Holding proposed a $1.4 billion merger with Knight, while Virtu Financial offered to buy Knight for at least $1.1 billion.

Apparel retailer Express ended the day up 8.9 percent to close at $14.15 after it forecast strong earnings for the current quarter as lower prices and easy-to-understand discounts led to robust Black Friday sales.

Green Mountain Coffee Roasters chalked up a gain of  27.3 percent to $36.86 a day after it forecast quarterly and full-year earnings well ahead of Street expectations.

Approximately 6.1 billion shares changed hands on the three major equity exchanges, a number that continued to be below the daily average so far this year of about 6.48 billion shares.

New Home Sales Down

The latest report by the Commerce Department released on Wednesday morning had new single-family home sales down slightly in October and the prior month's pace of sales was revised sharply lower, casting a bit of gloom over what has been one of the brighter spots in the economy. According to the Department, sales fell by 0.3 percent last month to a seasonally adjusted annual rate of 368,000 units.

Government data for new home sales are subject to substantial revisions and true to form the Commerce Department cut its estimate for September's sales to 369,000 units from 389,000 units.

The housing sector has been a point of relative strength this year in an economy beset by flagging business confidence and cooling demand from abroad, and Wednesday's report did not change the view that housing is still in recovery mode. The data leaves the pace of new home sales just below that reported in May, suggesting little upward momentum in the market for new homes.

While weakness in business spending has been restraining growth, most recent data has suggested the housing market is gaining momentum while consumer confidence has also been more bullish.

Wednesday's report showed the median sales price was 5.7 percent higher in October from a year ago, an upbeat signal for the housing sector's health. Still, the pace of year-over-year price increases has now slowed in two straight months.

The Commerce Department said Superstorm Sandy, which crashed into the U.S. East Coast at the end of last month, probably had a "minimal" effect on sales activity, and did not affect collection of data.

A separate report showed applications for home mortgages fell last week, though demand for mortgage purchases rose for a fourth straight week.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, dropped 0.9 percent in the week ending November 23.

According to the Bankers Association, its seasonally adjusted index of refinancing applications fell 1.5 percent. At the same time the gauge of loan requests for home purchases, a leading indicator of home sales was up 2.6 percent.