News Column

Dow Surges on Worldwide Rally, U.S. Housing Report

May 28, 2013
surge in stock market

Stocks surged more than 1% in early trading after unexpectedly strong gains in the U.S. housing market and consumer confidence, following a rally in global markets.

The Dow Jones industrial average shot up 199.29 points, or 1.3%, to 15,502.39 shortly after the opening bell in New York.

The broader Standard & Poor's 500 index rose 21.36 points, or 1.3%, to 1,670.96. The Nasdaq gained 47.39 points, or 1.4%, to 3,506.53.

The rally on Wall Street followed a jump in stock markets around the world and was fueled further by encouraging signs the U.S. economy was gaining steam. The rally Tuesday morning may signal that investors are welcoming economic growth, not just easy money from the Federal Reserve.

Investors are not "excited about a handout anymore," said Sam Stovall, chief equity strategist for S&P Capital IQ. "The excitement is coming from organic growth."

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Home prices in the country's 20 largest cities jumped 10.9% in March, according to the S&P/Case-Shiller Home Price Indices. The jump beat analysts' expectations and signaled a more robust comeback for the housing market. A report Tuesday also showed consumer confidence hit a five-year high.

Last week, weak economic data out of China triggered a 7% plunge in Japan's stock market, leading to a global sell-off. Wall Street, however, bucked the broad decline in stocks in a sign of the momentum of this year's rally.

Over the long Memorial Day weekend in the U.S., central bank leaders around the world reassured investors their stimulus programs would continue. U.S. markets, which were closed Monday, didn't have a chance to react until Tuesday morning.

"The U.S. markets are playing catch-up," Stovall said.

The Federal Reserve's monetary stimulus programs have fueled a run-up in stocks this year. The Dow is up 18.4% this year, as of Tuesday morning.

The central bank has continued to pump cheap money into the system. The aim is to lower interest rates to make borrowing cheaper and stimulate growth. In doing so, the Fed has made safer investments like bonds less attractive and lured investors into riskier assets like stocks.

Many on Wall Street have been expecting a pull-back or correction of 10% or more in stocks during the second quarter. But with May almost in the rear-view mirror, any significant halt in the rally has to wait for next month.

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