Why the Dow Is Up 150 Points

Blue-chip stocks are broadly higher today after government data suggested that inflation was lower than expected last month and that privately owned housing starts continued to head higher. With roughly an hour left in the trading session, the Dow Jones Industrial Average (DJINDICES: ^DJI  ) is up by 153 points, or 1.01%.

With the Federal Reserve set to decide on the direction of monetary policy this week, investors and analysts are closely watching for any indication about the state of the domestic economy, which could lead the central bank either to leave things as they are or to begin tapering its monetary support. The news today concerned both consumer prices and the pivotal housing sector.

The Bureau of Labor Statistics reported that consumer prices rose last month by 0.1% compared to April. Over the last 12 months, the rate came in at 1.4%. If you exclude fuel and food costs, which are particularly volatile, so-called "core" consumer prices moved up by 0.2% on a sequential basis and 1.7% compared to the same month last year.

Either way you look at it, both figures were below the Fed's target inflation rate of 2% -- though, to be clear, the central bank looks specifically at core consumer prices to inform monetary policy.

Meanwhile, the Department of Commerce data (link opens PDF) showing that privately owned housing starts in May were at a seasonally adjusted annual rate of 914,000. This was 6.8% above the preceding month and 28.6% above the rate in May of 2012. While the year-over-year figure looks particularly attractive, the majority of the increase came from the notoriously volatile multifamily market, which shot up by 69% on a year-over-year basis. The more critical single-family starts growth rate, while still impressive, was 16%.

On the heels of this news, it should be little surprise that many homebuilders are seeing their shares head higher in today's trading. The nation's largest homebuilder, D.R. Horton (NYSE: DHI  ) , is up by 1.1% at the time of writing. At its last earnings announcement, the construction giant reported a 33% uptick in net new-home sales and a 14% increase in average sales price. As the company's chairman noted at the time, "The spring selling season is off to a strong start."

Also headed higher today are shares of Home Depot (NYSE: HD  ) , the nation's largest home-improvement retailer. It largely goes without saying that any improvement in the housing market will trickle out to peripheral operators like Home Depot. In addition, as my colleague Dan Caplinger discussed earlier, the uptick in prices for housing-related items, evidenced by the BLS' report, also fuels revenue expansion for retailers in this space. Home Depot is up 1.5% late in trading.

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