Stocks Waver After Homebuilder Confidence Drops

Stocks rose modestly Monday as investors bought selectively following the market's big slide last week. The Dow Jones industrial average rose 39 points after being up more than 70 earlier in the day and after tumbling 261 on Friday. Broader indexes also rose modestly. Trading was erratic after another bad report on housing sent stocks briefly lower. The National Association of Home Builders said its confidence index sank to 14, its lowest level since March 2009. A reading below 50 indicates homebuilders have a negative view of the housing market

The report was the latest in a series of disappointing housing numbers that began appearing after the government's home buyer tax credit expired at the end of April.

"I don't know that it surprised anybody," Mike Shea, managing partner in equity sales and trading at Direct Access Partners, said of the report. "At the end of the day, it doesn't drive the market down, but it keeps the market from rising."

Homebuilders' stocks fell on the news. D.R. Horton Inc., Toll Bros. Inc. and Lennar Corp. all fell.

Further readings on the housing market are due out later in the week. They too are expected to show the market is weak and that there are few signs that business will pick up anytime soon. Economists predict reports on housing starts, building permits and sales of previously occupied homes will show declines for June.

The building permits data is likely to be particularly discouraging because it is used as a gauge for future construction. Investors have become more concerned with forecasts for the future rather than past reports, so anything that indicates weakness in the coming months and quarters is being met with disappointment.

Michael Sheldon, chief market strategist at RDM Financial Group, said Monday's modest gains were more about stocks stabilizing after Friday's sharp declines that any one particular driver such as earnings reports or economic indicators.

But the fact that the market recovered following the disappointing homebuilders news shows investors do have an appetitite for stocks, especially since the recent losses left them cheaper, Sheldon said.

Investors are still waiting to see the hundreds of second-quarter earnings reports that companies will be releasing during the next few weeks. Analysts say stock prices already reflect strong earnings numbers. Trading is more likely to turn on companies' forecasts for the future than how they did during the April-June period.

That happened Friday when investors sold off shares following earnings reports from banking giants Bank of America Corp. and Citigroup Inc. Investors were worried about how banks might generate revenue if investment banking and trading is curtailed by recently passed financial regulation reforms.

In afternoon trading, the Dow Jones industrial average rose 39.73, or 0.4 percent, to 10,137.63. The Standard & Poor's 500 index rose 4.39, or 0.4 percent, to 1,069.27, while the Nasdaq composite index rose 10.15, or 0.5 percent, to 2,189.20.

Rising shares slightly outnumbered those that fell on the New York Stock Exchange.

Volume was light, which can add to volatility in the market. Trading volume came to 405.7 million shares, compared with 706.3 million shares traded at the same time Friday.

D.R. Horton fell 12 cents to $9.98. Toll Bros. dropped 16 cents to $16.27, while Lennar fell 14 cents to $13.87.

Earnings again presented a mixed picture of potential economic growth.

Investors were encouraged by Halliburton Co.'s results and prospects for land-based business growth. The energy services company's stock jumped after it said a bad on offshore drilling would only cut earnings by 5 cents to 8 cents per share per quarter. Halliburton rose $1.35, or 4.9 percent, to $28.86.

At the same time, toy maker Hasbro Inc.'s again showed that shoppers are staying out of stores while unemployment remains high. Hasbro's earnings rose, but toy sales dropped adding to worries about the uncertain labor market and its effect on consumer spending. Hasbro fell 41 cents to $39.09.

Keith Goddard, co-manager of the Capital Advisors Growth Fund, said better-than-forecast earnings were usually enough to help drive shares higher. That hasn't been the case during the early part of this earnings season, which only adds to the scrutiny of companies reporting in the next couple of weeks.

"If you can't get a move up on good earnings, it's telling you that investors don't have optimistic outlook for the next one to two years," Goddard said.

More insight into the banking sector will come this week when Wall Street giants Goldman Sachs Group Inc. and Morgan Stanley report results. As two of the largest investment banks, they could be facing the biggest effects of the recently passed financial reform regulation.

Financial stocks were among the losers again Monday. Goldman shares fell 88 cents to $145.29, while Morgan Stanley fell 10 cents to $24.64. Bank of America shares fell 49 cents, or 3.5 percent, to $13.49.

Bond prices traded in a narrow range. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 2.95 percent from 2.93 percent late Friday.

European markets all dipped. Moody's Investors Service cut its rating on Ireland's debt. Ratings agencies have regularly slashed ratings on many European countries' debt in recent months as mounting deficits dim the hopes for strong growth.

Britain's FTSE 100 fell 0.2 percent, while Germany's DAX dipped 0.5 percent and France's CAC-40 fell 0.4 percent.

Japan's Nikkei stock average fell 2.9 percent.

 (Copyright 2010 by The Associated Press.  All Rights Reserved.)