How Housing Built the Dow's Surge
May 30th 2013 2:33PM
Updated May 30th 2013 3:50PM
The housing market's recovery has been one of the best signs of the economy's comeback from the depths of the 2008 recession, and strong data from the sector has fueled stocks today. The Dow Jones Industrial Average has rallied behind its financial stocks, jumping 80 points, or around 0.51%, as of 2:15 p.m. EDT. Housing's optimism has pushed the majority of the blue-chip index's members into the green in what's shaping up to be a good day for investors. Is this sector on pace for even more gains? Let's check out how housing spurred the market's gains.
Housing's big comeback
Pending home sales rose another 0.3% in April, according to a National Association of Realtors release today. That's a high not seen since April 2010, although it fell below economist predictions. It may be just one number, but the gain in pending sales comes on the back of multiple strong indicators of housing's rebound.
According to the Federal Housing Finance Agency, home prices rose 1.9% in the year's first quarter, and private housing starts in April were 13.1% ahead of April 2012's figure. While some have cautioned that reduced supply of houses on the market could hurt sales in coming months, prices should capitalize and continue to rise. That's good news for sellers as the market digs out of the drastic dive in prices brought on by the financial crisis.
Higher prices mean good things for the financial sector, too, and two of the Dow's big banks are on the upswing today. Bank of America has jumped 2.7% to lead the index higher, while fellow financial powerhouse JPMorgan has seen its stock rise 1.9%. Rising home prices are just what B of A needs to push past its losses from its Countrywide disaster and other problems related to the recession. While Bank of America doesn't finance quite so much as some competitors in the mortgage loan business, the firm still generated $24 billion in home loans in the first quarter. Lagging supply will reduce the number of loans the bank processes, but the hike in prices will keep the firm steady.
JPMorgan is set to ride housing higher with its business firmly behind CEO and chairman Jamie Dimon after he survived criticism and calls for his roles to be split. While the bank's still dealing with regulatory scrutiny over its "London Whale" trading losses and other affairs, JPMorgan has gotten back into home-loan-backed bond sales recently. The firm has already made one sale of "high-quality" mortgage-backed bonds this year, according to Bloomberg, and it's planning another sale soon. JPMorgan investors could use a breather from the drama of regulation and leadership issues, and if housing can continue to rise, this firm should be just fine.
The economy's comeback has fueled a rise in consumer confidence as well, and American Express is right in line to capitalize. The credit card company's shares have risen 0.9% today, and Japanese financial company Nomura Holdings reiterated its "buy" rating on the stock today as well. American Express isn't as directly tied to the housing market as the big banks are, but if Americans are returning to home-buying, expect consumption to follow that confidence higher. The U.S. economy already grew at an annualized rate of 2.4% in the first quarter, and if it keeps that figure up, average Americans should head back to stores regardless of tax hikes and sequester cuts.
Around the Dow, Boeing shares are also on the rise today, gaining 1.7% to rank near the top of the index. Shareholders received good news today when Singapore Airlines purchased 30 of Boeing's stretched 787-10X Dreamliner aircraft. While the order wasn't perfect -- Singapore Airlines split its $17 billion order between Boeing's jets and rival Airbus' A350-900 planes -- the buy is a show of faith in the 787 after its grounding dominated headlines in the first few months of the year. Boeing boasts an order backlog of more than 800 787s, and the company's looking to ramp up production to keep deliveries coming. For Boeing, the skies are looking clear after a stormy start to the year.
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The article How Housing Built the Dow's Surge originally appeared on Fool.com.Fool contributor Dan Carroll has no position in any stocks mentioned. The Motley Fool recommends American Express. The Motley Fool owns shares of Bank of America and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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