U.S. equities enjoyed another curious surge on Tuesday, mirroring the rallies seen on May 10 and May 16, on no specific catalyst. Tech stocks were the leaders, with a 3.1% gain by Microsoft Corporation (NASDAQ:MSFT) and a 2.2% gain in Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL).
The session had all the hallmarks of a classic short squeeze. Yet, the bulls were unable to push large-caps back over their 50-day moving average, suggesting the downtrend from the mid-April high is still in play. We’ll need to see some follow up gains on Wednesday to confirm the start of a new trend.
In the end, the Dow Jones Industrial Average gained 1.2%, the S&P 500 wafted up 1.4%, the Nasdaq Composite gained 2% and the Russell 2000 ended the day with a 2.1% gain. Treasury bonds were mostly weaker, the dollar was stronger, gold lost 1.7% and crude oil gained 1.5% to close at $48.81 a barrel.
Technology stocks led the way with a 2.1% gain followed by financials and health care, both up 1.5%.
Homebuilder Toll Brothers Inc (NYSE:TOL) gained 8.7% after reporting a fiscal second-quarter earnings beat on better-than-expected deliveries that were up 9% from last year. Average home selling prices were also higher.
Also boosting sentiment on housing was a super strong new home sales report showing April sales up 16.6% from March to the highest level since January 2008. It was the largest monthly gain since January 1992.
The median selling price rose 9.7% to a record $321,000. Inventory is right, with months’ supply dropping to 4.7 from 5.5, while the number of homes sold, but not yet under construction improved to the best level since May 2007.
Low mortgage rates and ongoing strength in the labor market are both playing a role here.
As a result, the S&P Homebuilders SPDR (NYSEARCA:XHB) gained 2.1% for its best one-day performance since September.
Energy stocks were the laggards with a gain of 0.5%. Electronics retailer Best Buy Co Inc (NYSE:BBY) lost 7.4% after reporting a Q1 earnings-per-share beat on better U.S. comp-store sales (flat vs. expectations for a 1.4% drop) and better margins. But guidance for Q2 was 20% below expectations on a drag from investment spending. Analysts at Citigroup issued a downgrade.
There was more Fed chatter as well, but it was drowned out by the excitement over the market gains and the housing market data. Philadelphia Fed President Harker on Monday night said he could easily see two or three rate hikes this year — echoing a common sentiment heard over the last few weeks that futures market expectations for a single rate hike this year are too low.
For now, investors seem to be putting this — and the possibility of a June rate hike — out of mind. But Federal Reserve Board Chair Janet Yellen’s speech on Friday at Harvard, if it reflects the recent hawkish bent of her colleagues, will change that blasé attitude in a hurry.