There was some good news regarding housing today, however it is only minuscule in the grand scheme.
Fund managers are starting to restock their portfolios with stocks as the last few days rally is showing
Here are the top financial stories of the day:
1) Dow's Rally Loses Steam-From The Wall Street Journal
A sharp afternoon downdraft prompted U.S. stocks to erase more than half of their earlier gains, as investors fretted over a report that highlighted a potential split in the euro zone over the terms of Greece's second bailout.
The Dow Jones Industrial Average finished the session up 146.83 points, or 1.33%, to 11190.69, after surging as much as 325 points. The gains came a day after the blue-chip index climbed 272 points.
The Standard & Poor's 500-stock index gained 12.43 points, or 1.07%, to 1175.38. Each of the 10 sectors in the index finished in positive territory. The technology-oriented Nasdaq Composite closed up 30.14 points, or 1.2%, to 2546.83.
Stocks pared gains in the final trading hour after the Financial Times reported a split has developed in the euro zone over the terms of Greece's second bailout package. As many as seven of the bloc's 17 members are arguing for private creditors to swallow a bigger writedown on their Greek bond holdings, the FT said, citing senior European officials.
"This shows more indecision and a lack of something definitive getting done," said Tom Donino, co-head of trading at First New York Securities. "Everyone keeps thinking we're getting closer and closer to getting something done in Greece. But then we get word that we're not as close as we thought."
Traders pointed to this report as one of the main catalysts that prompted profit taking from investors and the major indexes to finish well off session highs.
The report came after Greece's parliament Tuesday approved a new property tax law in a closely watched vote, taking a key step in the country's efforts to secure further aid from its international creditors and avoid default.
The vote was a crucial test to enact fresh austerity measures in coming weeks and meet budget goals for this year and 2012.
Still, the market action in the final trading hour highlighted how jittery traders and investors have become in this turbulent trading environment.
"Any little blip on the news horizon tends to cause an overreaction in the trading pit these days," said Stephen Leuer, floor trader at X-FA Trading.
Stocks have gyrated sharply on a daily basis in recent weeks. The Dow plunged 6.4% last week, its biggest drop since October 2008. But it gained 4.7% in the previous week, underscoring how the market is moving wildly in either direction without true fundamentals supporting the moves.
"We're hanging on to every word coming out of Europe," said Elliott Roman, managing director at Direct Access Partners.
In the U.S., fears of a potential government shutdown were assuaged after a deadlock on budget talks was broken, leading the Senate to approve of a bill late Monday to fund the government through Nov. 18. The House is likely to approve the bill as well.
Investors largely overlooked another bleak reading on consumer sentiment. The Conference Board, a private research group, said its index of consumer confidence edged up to 45.4 in September from a revised 45.2 last month. The level is down sharply from July's 59.2 reading.
"The black clouds are still out there," said Daniel Morgan, portfolio manager at Synovus Securities, who described Tuesday's bounce as more of a "technical rebound" as opposed to a sign of sustainable optimism that the European debt crisis is coming to a head.
2) Spring buying boosts home prices, market still sluggish-From USA Today
Home prices rose for a fourth straight month in most major U.S. cities in July, buoyed by the peak buying season. But the housing market remains depressed, and prices are expected to decline in the coming months.
The Standard & Poor's/Case-Shiller index released Tuesday showed home prices increased in July from June in 17 of the 20 cities tracked.
Prices rose sharply in Minneapolis and Chicago. Prices in two cities hit hardest by the housing crisis —Las Vegas and Phoenix — declined.
The index, which covers half of all U.S. homes, measures prices compared with those in January 2000 and creates a three-month moving average. The July data are the latest available.
Analysts cautioned that the price increases are temporary, and not evidence of a housing recovery. Home sales have declined in each of the months in which prices rose.
Prices are expected to drop again this fall and winter, based on the poor sales and expectations that banks will resume processing a raft of foreclosures that have been in limbo.
"This is still a seasonal period of stronger demand for houses, so monthly price increases are expected," said David M. Blitzer, chairman of Standard & Poor's index committee. "While we have now seen four consecutive months of generally increasing prices, we do know that we are still far from a sustained recovery."
Over the past 12 months, prices have fallen in all but two cities: Detroit and Washington.
In Detroit, prices have risen 1.2% during that stretch. Still, the city has been among the nation's worst housing markets over the past decade. In July, homes prices there were equal to 1995 levels.
"In some cities, prices are so undervalued they are not likely to fall further," said Patrick Newport, U.S. economist at IHS Global Insight. "Detroit, which largely avoided a run-up in prices but still saw prices collapse, may be a case in point."
Washington, conversely, has had America's best housing market. Home prices in the nation's capital have increased 0.3% in those 12 months, and were equal to 2004 levels in July.
Housing is a key reason the economy has struggled more than two years after the recession officially ended.
High unemployment, larger required down payments and tighter credit are preventing many buyers from entering the market. Many who could afford to buy are waiting because they are worried the U.S. could fall back into another recession and prices could fall further.
Sales of previously occupied homes are only slightly ahead of last year, which was the weakest since 1997.
New-home sales dropped in August for a fourth straight month. This year is shaping up to be the worst for sales of new homes on records dating back to 1963.
And home prices are certain to fall further once banks resume millions of foreclosures, which have been delayed because of a 10-month government investigation into mortgage lending practices.
"This effect (of spring buying) will fade soon because sales have dropped back in recent months," said Ian Shepherdson, chief U.S. economist for High Frequency Economics. "We expect to see price declines again by the autumn, but we do not anticipate a renewed collapse" in the housing market.
3) Balanced Funds Tilt Toward Stocks, While Investors Want to Scale Back-From The Wall Street Journal
While individual investors have been fleeing the stock market for months, some fund managers have been pushing them right back in.
Among fund managers with the flexibility to invest in a mix of stocks, bonds and other assets, the trend has been stocks, stocks and more stocks. According to the latest data available from fund researcher
Morningstar Inc., stocks represented 55% of the average allocation fund at the end of August, up almost five percentage points from the start of the year and up from 41% at the end of 2009.
In contrast, of course, investor sentiment could hardly be clearer: Mutual-fund investors pulled an estimated $45 billion out of equity funds from August through mid-September, continuing a steady trend away from stocks that began when the market crashed in 2008.
The division between investors' actions and those of the managers who run their money is only more pronounced in the international arena. Among funds that invest in a mix of global stocks and bonds, stocks made up 58% of portfolios at the end of last month, up from 37% at the end of 2009, according to the Morningstar figures.
Fund managers say they aren't beholden to investor sentiment—even if the investors in question are fund shareholders. "People tend to look at five- and 10-year returns," says Ed Perks, who runs the $58 billion Franklin Income Fund, which has raised its stock allocation to 35% from 27% in 2009. "We're trying to evaluate what returns will be over the next five and 10 years."
That, the managers say, points them directly at stocks. Bond yields are at historic lows, and many bond portfolios already have logged impressive returns. Meanwhile, dividend stocks are, on average, yielding more than 10-year Treasurys. And while stocks may be volatile, a market focused on big-picture economic worries is punishing strong and weak companies alike, says Mr. Perks.
Some funds have made even more significant shifts: The $75 billion American Funds Capital Income Builder's stock allocation has risen to 73% from 64% at the end of 2009, the $10.8 billion T. Rowe Price Capital Appreciation Fund's stake is up to 72% from 65%, and the $1.1 billion Templeton Global Balanced Fund's stock portion is at 63%, up from 46%.
Representatives of these three funds say that yields and valuations are more attractive in stocks than in bonds right now. David Giroux, manager of the T. Rowe fund, also says that his fund uses an options strategy that can make the fund's stock portion look higher than it effectively is.
As large as these moves toward stock assets may seem, they are well within a manager's purview, says Kevin McDevitt, a mutual-fund analyst with Morningstar.
Most of these funds allow for quite a bit of flexibility, promising to generally invest, say, between 50% and 70% of their assets in stocks.
Still, investors spooked by the stock markets might be at the very least surprised to find they have more money in stocks than they had thought. It does increase the risk of short-term losses, ostensibly in exchange for longer-term performance, says Kate Warne, market strategist at Edward Jones. For now, she says, investors in these funds should "be sure that you're comfortable with the additional risk of short-term declines."
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