NEW YORK (AP) — Wall Street proceeded cautiously Tuesday, with stocks rising moderately following disappointing readings on pending home sales and factory orders.
While investors expected the data to show further deterioration, they were hoping the pace of the declines would slow. The market is eager for signs that the U.S. recession will end this year.
The National Association of Realtors said Tuesday that pending home sales fell to the lowest level on record in November. The trade group said its seasonally adjusted index of pending sales for existing homes fell 4 percent to 82.3 from a downwardly revised October reading of 85.7 in October. That’s worse than the reading of 88 that economists expected, according to Thomson Reuters.
Meanwhile, the Commerce Department said factory orders declined by 4.6 percent in November, nearly double the 2.5 percent dip economists expected. The drop marks a record fourth straight month of declines.
One bright spot among the day’s reports: the Institute for Supply Management said the U.S. services sector contracted at a slower pace last month. The trade group of purchasing executives said its services sector index rose to 40.6 in December from 37.3 in November. Wall Street economists had expected the index to slip slightly to 37.
The index continues to signal the sector is contracting, however. A reading below 50 signals contraction, while a reading above 50 indicates growth.
In early afternoon trading, the Dow Jones industrial average rose 44.29, or 0.49 percent, to 8,997.18, after rising as much as 122 points prior to the reports. The Standard & Poor’s 500 index rose 6.36, or 0.69 percent, to 933.81, while the Nasdaq composite index advanced 22.15, or 1.36 percent, to 1,650.18.
The Russell 2000 index of smaller companies rose 6.70, or 1.33 percent, to 511.73.
Tuesday’s advance follows a recent pattern in which investors have largely shrugged off weak economic data. Wall Street has been showing some signs of stability since hitting multiyear lows on Nov. 20; the Dow is up 18.5 percent since then, while the S&P 500 index is up 23.3 percent. But analysts are quick to note that the market is not out of the woods yet.
“We’ve had sort of a positive correction,” said Brian Gendreau, investment strategist at ING Investment Management. “The question is, is this the beginning of a sustained bull market? I would suspect not.”
Investors are hoping for an economic recovery later this year. Any signs that the recession will extend beyond that could rattle the market, analysts say.
“I think people are cautiously optimistic,” said Ben Halliburton, chief investment officer at Tradition Capital Management. “They are hopeful that the Obama administration is going to get the economy back on track. But I think the speed at which they get things back on track might be slower than the current consensus believes.”
Later Tuesday, the Federal Reserve will release minutes from its December meeting. At that gathering, policymakers slashed the key interest rate to a record-low range of zero to 0.25 percent to encourage lending and borrowing. The central bank, which has begun buying mortgage-backed securities, also said at the time it was considering buying other types of securities, too, such as Treasurys.
“We’re all wondering about Federal Reserve policy,” said Hugh Johnson, chairman and chief investment officer of Johnson Illington Advisors. “Is there any more that the Federal Reserve can do? Are there any more arrows in their quiver? You might get a clearer answer on that from the minutes; they might discuss all the options available to the Federal Reserve.”
On Monday, the Dow fell 81 points, giving back some of its gains from last week’s rally in which all the major indexes rose more than six percent. Investors were encouraged, though, about President-elect Barack Obama’s calls for an economic stimulus package.
Though investors are hopeful that Obama’s plans for big tax breaks and public works programs will boost the economy, analysts expect Wall Street to remain on edge in the coming weeks, ahead of corporate earnings reports. Investors will be looking to glean any insight into companies’ expectations for the coming year.
“People are really undecided on what ’09 is going to look like from an earnings perspective,” said David Waddell, senior investment strategist and chief executive of Waddell & Associates. “(The market) could get a bit more pessimistic depending on how ugly the fourth quarter is. The surprise would be if things aren’t as bad as we think.”
Bond prices retreated on Tuesday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 2.55 percent from 2.48 percent late Monday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.13 percent from 0.09 percent.
Advancing issues outnumbered decliners by about 3 to 1 on the New York Stock Exchange, where volume came to 604.99 million shares.
The dollar was mixed against other major currencies. Gold prices fell.
Light, sweet crude for February delivery rose 62 cents to $49.43 a barrel on the New York Mercantile Exchange.