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Why the Markets Soared Again

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Let's face it: Investors don't want to hear about economic data anymore. At this point in the summer, every person who even loosely follows the news knows that the worldwide economies continue to struggle. But today, housing showed signs of life, and companies proved that they can make profits regardless of the economic state. Pleasantly surprised, the Dow Jones Industrial Average (INDEX: ^DJI  ) gained 0.81% and the S&P 500 (INDEX: ^GSPC  ) added 0.67%.

The markets ignored some depressing testimony from Treasury Secretary Timothy Geithner, as well as from the Federal Reserve, whose report simply echoed Chairman Ben Bernanke's earlier assertion of a troubled U.S. economy, as three of the 12 Fed districts reported a drop-off in growth compared with the institution's previous report. Geithner, for his part, highlighted an economy "definitely slower" than he liked in an interview earlier today.

But the day had too many positives for pessimism to keep markets down. Another sign of a housing recovery helped start the rally. Builder starts on new homes hit their highest point since October 2008 today, and the number indicates the beginning of a housing recovery even as the industry overall remains stressed.

Most importantly, earnings soared. IBM (NYSE: IBM  ) 's 6% earnings increase didn't even factor into the gains since it reported after hours, but technology companies increased as 2012 expectations are turning out not to be as gloomy as previously expected. Growth is slowing in the U.S. and China, though not negative, and good companies continue to take advantage.

A number of companies contributed to a tech rally that sent the Nasdaq up more than 1%, including diversified electronics manufacturer Amphenol (NYSE: APH  ) . Shares jumped 14.76% after the company posted 4% sales growth for the second quarter compared with last year and EPS of $0.86. Analysts had expected $0.84 in EPS, but CEO Adam Norwitt surpassed that number and expects even further growth in the future. But the stock's nearly 15% gains is probably an overreaction to a modest earnings improvement for the company.

Honeywell (NYSE: HON  ) also reported earnings today to general applause. The company smashed its year-ago EPS with a reported $1.14, surpassing analyst expectations of $1.11 as well. It earned solid profits from the Americas as well as emerging markets, saw sales rise 4%, and raised its 2012 EPS outlook slightly. Shares rallied 6.67% on the news.

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Fool contributor Will Chavey owns no shares of the stocks mentioned above. The Motley Fool owns shares of IBM. Motley Fool newsletter services have recommended creating a synthetic long position in IBM. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.

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  • Report this Comment On July 18, 2012, at 9:51 PM, MHedgeFundTrader wrote:

    After my regular dump on residential real estate, I feel obliged to reveal one corner of this beleaguered market that might actually make sense.

    By 2050 the population of California will soar from 37 million to 50 million, and that of the US from 300 million to 400 million, according to data released by the US Census Bureau and the CIA fact Book (check out the population pyramid below).

    That means enormous demand for the low end of the housing market–apartments in multi-family dwellings. Many of our new citizens will be cash short immigrants. They will be joined by generational demand for limited rental housing by 65 million Gen Xer’s and 85 million Millennials enduring a lower standard of living than their parents and grandparents. These people aren’t going to be living in cardboard boxes under freeway overpasses. Or maybe they will.

    The trend towards apartments also fits neatly with the downsizing needs of 80 million retiring Baby Boomers. As they age, boomers are moving from an average home size of 2,500 sq. ft. down to 1,000 sq. ft. condos and eventually 100 sq. ft. rooms in assisted living facilities. The cumulative shrinkage in demand for housing amounts to about 4 billion sq. ft. a year, the equivalent of a city the size of San Francisco.

    Fannie and Freddie financing is still abundantly available at the lowest interest rates on record. Institutions combing the landscape for low volatility cash flows and limited risk are starting to pour money in.

    The Mad Hedge Fund Trader

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Today's Market

updated Moments ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

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10/21/2016 4:20 PM
^DJI $18145.71 Down -16.64 -0.09%
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S&P 500 INDEX CAPS Rating: No stars
APH $65.96 Down -0.47 -0.71%
Amphenol CAPS Rating: ****
HON $108.96 Up +0.82 +0.76%
Honeywell Internat… CAPS Rating: ****
IBM $149.63 Down -1.89 -1.25%
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