Markets Surge at Quarter's End

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Although housing construction was down in August, sales of new homes were up, and Wall Street surged at the end of the fall quarter and took housing stocks along for the ride.

October 01, 2006

 

Although housing construction was down in August, sales of new homes were up, and Wall Street surged at the end of the fall quarter and took housing stocks along for the ride. The Dow Industrials flirted with record highs as our session ended Sept. 29. The boost came largely from falling oil prices and the Fed holding steady on interest rates — even sparking rumors that interest rates could be kicked down a notch by years' end. For now, the rate stays at 5.25 percent. "The single biggest change in the third quarter was an improved outlook for inflation from the Fed," said Hugh Johnson, chief investment officer of Johnson Illington Advisors in Albany, N.Y.

Stocks remained in positive terrain despite volatility in the sector. On the builders' side, the index rose 19.77 points, or 2.01 percent, to close at 1003.78. Advancing issues topped declining issues at a 19-16 count. The Product Manufacturers' Index posted even more robust gains, adding 31.78 points, or 3.42 percent, to close at 961.98. Advancing issues put in a stellar showing, outshining declining issues by a count of 11-1.

Though the numbers were positive, most of the news was negative, as seen by Sherwin Williams shares, which gained 4.14 points, or 8.02 percent, to end at 55.78. However, investment firms J.P. Morgan and Morgan Stanley cut their ratings on SHW, with Morgan Stanley revising its rating downward to equal-weight from overweight. J.P. Morgan's assessment changed to neutral from overweight. J.P. Morgan cited valuation. Sherwin Williams was the top percentage gainer on the manufacturers' end.

Whirlpool was also up despite a downgrade to sell from hold from Citigroup. The brokerage also cut its price target to $80, from $85. Citigroup said it sees a potential drop in demand as influenced by softer housing fundamentals. Whirlpool gained 3.20 points, or 3.96 percent, and closed at 84.11.

Similar action happened at St. Joe on the builders' side of the aisle. Shares of St. Joe added 3.91 points, or 7.67 percent, and ended at 54.87. Morgan Stanley and Wachovia cut their ratings on St. Joe. Wachovia cut its rating to market perform from outperform, and Morgan Stanley downgraded the company to underweight from equal weight. Morgan Stanley also cut its price target to $43, from $50, saying in a research note that its cuts were made to reflect worsening fundamentals. Company officials denied rumors of an acquisition or merger to explain the increase in stock price.

Technical Olympic [NYSE: TOA] slipped 2.33 points, or 19.16 percent, this month to end at 9.83. TOA said its Transeastern joint venture is undergoing review, with lenders assessing prospects of the venture and recommending an action plan. Technical Olympic said it doesn't expect any information from the review for some time.

Price 9/29/2006 Price 8/31/2006 Net Change Percent Change
Product Manufacturers' Index $961.98 $930.20 31.78 3.42%
Dow Jones Industrial Average $11,679.07 $11,381.15 297.92 2.62%
S&P 500 Index $1,335.85 $13,03.82 32.03 2.46%
NASDAQ Composite $2,258.43 $2,183.75 74.68 3.42%
Gainers/Losers
$ Gainer Black & Decker Corp. 5.71
$ Loser USG Corp. -3.96
% Gainer Sherwin-Williams Co. 8.02%
% Loser USG Corp. -7.76%
Advancers 11
Decliners 1
Source: Trade Trends


Price 9/29/2006 Price 8/31/2006 Net Change Percent Change
Builders' Index $1,003.78 $984.01 19.77 2.01%
Dow Jones Industrial Average $11,679.07 $11,381.15 297.92 2.62%
S&P 500 Index $1,335.85 $1,303.82 32.03 2.46%
NASDAQ Composite $2258.43 $2,183.75 74.68 3.42
Gainers/Losers
$ Gainer NVR 21.35
$ Loser Walter Industries (Jim Walter Homes) -12.36
% Gainer Brookfield Homes Corp. 19.32%
% Loser Walter Industries (Jim Walter Homes) -22.46%
Advancers 19
Decliners 16
Source: Trade Trends (509) 327-1279



Author Information
Margot Crabtree is president of Trade Trends, a financial services company.


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