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Why Stocks Are Shooting Higher

Blue-chip stocks are surging this afternoon following a number of better-than-expected economic reports related to jobs, income, spending, inflation, and home sales. With roughly an hour left in the trading session, the Dow Jones Industrial Average (DJINDICES: ^DJI  ) is up by 123 points, or 0.83%.

According to the Department of Labor, the number of people filing for unemployment benefits fell last week by 9,000 compared with the previous week. While the week's total of 346,000 applications was still too high, as you can see in the chart below, they're nevertheless on a steady downward trend. At the peak of the employment crisis in 2009, for instance, twice as many applications were filed each week.

Also out today were income and spending figures for the month of May. Data from the Department of Commerce showed that personal income grew by 0.5% last month, while personal consumption expenditures were up by 0.3%. The gap between the two is indicative of a higher savings rate. In the same report, the government said core inflation (the Federal Reserve's preferred measure of inflation) was up by only 0.1% on a monthly basis and 1.06% on a year-over-year basis -- that's less than half the central bank's target rate of 2% on an annual basis.

Finally, the National Association of Realtors released its estimate of last month's pending homes sales -- i.e., home sales where a contract has been signed but the parties have yet to close. The association estimated that contract signings increased sequentially by 6.7% in May and by 12.1% over the same month last year. According to NAR's chief economist, "It appears some of the rise in contract signings could be from buyers wanting to take advantage of current affordability conditions before mortgage interest rates move higher."

And speaking of mortgage rates, weekly statistics provided by Freddie Mac showed that the cost of a home loan shot up last week by the largest amount since at least 1976, when the now-government-owned entity started publishing the statistic. The rate on a 30-year fixed-rate mortgage currently sits at 4.46%, up from 3.93% last week.

In terms of individual stocks, shares of the nation's largest homebuilders are all rallying on the positive developments out of the housing sector. Among others, D.R. Horton (NYSE: DHI  ) is up by 3.1%, and Lennar (NYSE: LEN  ) has climbed 3.9%. Both companies have seen new-home sales pick up over the past year as mortgage rates hit rock bottom and the demand for new houses began exceeding supply. In last week's quarterly earnings release, Lennar reported a 27% improvement in orders and a 55% uptick in its backlog. What now remains to be seen is how consumers will respond to the trend in mortgage rates.

On the Dow, meanwhile, shares of Hewlett-Packard (NYSE: HPQ  ) are leading the blue-chip index higher this afternoon, up by 2.5% at the time of writing. The struggling personal-computer maker has been on a run since the beginning of the year, up by nearly 60%. This makes it the best-performing Dow component of 2013 by a long shot. Whether or not this streak can continue will be based in part on the leadership of relatively new CEO Meg Whitman, who formerly ran the show at eBay.

Heading lower, alternatively, are shares of Johnson & Johnson (NYSE: JNJ  ) , down by 0.3%. It's nearly impossible to determine what's behind this move, as there were no obvious catalysts in the news today. One potential explanation is that investors are simply taking gains. As my colleague Brian Orelli discussed earlier, Johnson & Johnson's stock has been on a tear of late, prompting the likes of Warren Buffett to take gains by paring his holdings.

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8/25/2016 2:32 PM
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