A triple for Russell 2000
The Russell 2000 (NYSE: IWM) and the Dow rose for the third day in a row on news of upbeat earnings from tech heavyweights. The small-cap index added 21.51 points, or 2.78%, to 795.64. The Dow Jones Industrial Average (INDU) rose 153.56 points, or 1.14%, to 13,657.86.
Stocks gained out of the gate following news that Cisco Systems Inc. (Nasdaq: CSCO), the world’s largest maker of computer-networking equipment, saw its fiscal fourth-quarter profit increase 25% to $1.9 billion, compared with $1.54 billion a year earlier.
Adding to the positive sentiment was Sprint Nextel Corp. (NYSE: S), after the Reston, Va.-based wireless provider reported a year-over year rise in the number of its subscribers and posted quarterly income that beat analysts’ expectations.
Separately, the Mortgage Bankers Association reported that more Americans are taking out loans to buy homes. The trade group’s Market Composite Index, which measures mortgage loan application volume, rose 8.1% to 656.5 from a level of 607.1 last week.
That was enough to fuel a strong rally that propelled the small-cap index to a peak above 800 points at about 2:30 p.m. ET, before it shed some of its gains.
News of a mixed forecast for the U.S. housing sector may have had something to do with the rally’s sputtering.
“Mortgage disruptions will hold back sales over the short term, but long-term fundamentals are favorable,” said Lawrence Yun, senior economist at the National Association of Realtors.
The Washington, D.C.-based trade group projects new-home sales of 852,000 in 2007 and 848,000 in 2008, down from 1.05 million in 2006. Existing-home sales are forecast at 6.04 million in 2007 and 6.38 million in 2008, below the 2006 level of 6.48 million.
“With the population growing, the demand for homes isn’t going away – it’s just being delayed,” Yun said.
NAR expects existing-home prices to decline 1.2% to $219,300 in 2007 from $221,963 in 2006. Prices are projected to climb to $223,600 in 2008.
Investors are more optimistic this week in reaction to assurances that U.S. economic growth is on track despite a tightening of credit conditions due to the subprime mortgage meltdown.
On Tuesday, the U.S. Federal Reserve said that the economy will expand at a “moderate pace” in the near future, and today Treasury Secretary Hank Paulson said that the economy is healthy and its fundamentals remain solid.
