Stock Market News for December 21, 2011 - Market News

Strong housing sector data and positive headlines from the other side of the Atlantic helped markets rally on Wednesday. While stocks enjoyed one of their best days this month, the housing and the financial sector were the key factors responsible for yesterday's rally.

The Dow Jones Industrial Average (DJIA) soared 335 points or 2.9% to close at 12,103.58. The Standard & Poor 500 (S&P 500) jumped 3.0% and settled the day at 1,241.30. The Nasdaq Composite Index closed substantively higher at 2,603.73, gaining 3.2%. Macro-economic concerns are still an overhang on investor sentiment and European debt concerns continue to remain unresolved. However, even during such a scenario, the fear-gauge CBOE Volatility Index (VIX) dropped to its lowest level since July, dropping 6.8% to 23.22.

Nonetheless, the rally and the drop in fear-gauge index came on a day when volumes remained significantly low. On the New York Stock Exchange (NYSE), American Stock Exchange and Nasdaq, consolidated volumes were 6.83 billion shares, lower than last year's daily average of 8.47 billion. Advancing stocks outnumbered the decliners, as for 86% advancing stocks; 12% of stocks declined.

In the words of Nuremberg-based market research company, GfK: "Despite increased economic risks and a further intensification of the debt crisis, Germans are looking to the future positively again". This was significant encouragement for the investors, as it comes at a time when sentiment is reeling from a gloomy economic outlook and lingering European debt woes. The research company's barometer forecast the household confidence index to end flat in December's points at 5.6. GfK further stated: "For the first time in five months, economic expectations have risen. And in line with this, consumers are expecting an increase in income next year".

Meanwhile, Spain's borrowing costs showed a sharp decline and the Spanish government successfully auctioned short-term bonds at a significant lower rate. The Spanish government raised $7.3 billion from the auction and investors agreed to an interest rate of 1.7% for three months, significantly lower than the level of 5.1% in November.

On the domestic front, the US Federal Reserve announced new norms which banking giants will have to adhere to. These measures are an attempt to avoid a financial crisis of likes of the one which occurred after the collapse of Lehman Brothers in 2008. The central banks' proposals demand that banks with assets worth $50 billion will have to meet a Tier 1 capital ratio of 5%. Additionally, the proposals also suggested that banks that have a role to play in the global financing scenario will have to raise an additional 2.5%.

The strict norms laid out by the central bank was less arduous than what the markets had apprehended, and helped the banking stocks to register gains. Consequently, Bank of America Corporation (NYSE: BAC ), The Goldman Sachs Group, Inc. (NYSE: GS ), JPMorgan Chase & Co. (NYSE: JPM ), Morgan Stanley (NYSE: MS ) and Wells Fargo & Company (NYSE: WFC ) jumped 3.7%, 3.7%, 4.9%, 4.5% and 4.7%, respectively.

Markets also benefited from a strong reading of the US housing sector. Housing sector plays a key role in the economy, and a report stating home building had reached its highest level in almost two years helped boost sentiment .According to the Commerce Department: "Privately-owned housing starts in November were at a seasonally adjusted annual rate of 685,000. This is 9 3 percent (±13 1%)* above the revised October estimate of 627,000 and is 24.3 percent (±20.1%) above the November 2010 rate of 551,000". This came in higher than the consensus estimates of a reading of 632, 000, and also surged to a near 2 year-high. Building permits shot up to its highest level since March 2010 and the report stated: "Privately-owned housing units authorized by building permits in November were at a seasonally adjusted annual rate of 681,000. This is 5.7 percent (±1.6%) above the revised October rate of 644,000 and is 20.7 percent (±1.8%) above the November 2010 estimate of 564,000".

Housing stocks posted strong gains following the report. KB Home (NYSE: KBH ), PulteGroup, Inc. (NYSE: PHM ), Lennar Corp. (NYSE: LEN ), DR Horton Inc. (NYSE: DHI ) and Toll Brothers Inc. (NYSE: TOL ) surged 10.1%, 10.4%, 6.3%, 5.7% and 6.4%, respectively.

BANK OF AMER CP ( BAC ): Free Stock Analysis Report

D R HORTON INC ( DHI ): Free Stock Analysis Report

GOLDMAN SACHS ( GS ): Free Stock Analysis Report

JPMORGAN CHASE ( JPM ): Free Stock Analysis Report

KB HOME ( KBH ): Free Stock Analysis Report

LENNAR CORP -A (LEN): Free Stock Analysis Report

MORGAN STANLEY (MS): Free Stock Analysis Report

PULTE GROUP ONC (PHM): Free Stock Analysis Report

TOLL BROTHERS (TOL): Free Stock Analysis Report

WELLS FARGO-NEW (WFC): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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