Stocks soar worldwide as 'green shoots' lure hungry bulls

Stock markets worldwide went on a tear today, stoked by more optimism about the global economic outlook.

The advance on Wall Street pushed the benchmark Standard & Poor’s 500 index back into the black for the year, for the first time since Jan. 8.

The S&P jumped 29.72 points, or 3.4%, to 907.24. It’s now up 0.4% year to date, after plummeting as much as 25% between Jan. 1 and March 9.

The Dow Jones industrials gained 214.33 points, or 2.6%, to 8,426.76.

Rising stocks outnumbered losers by almost 6 to 1 on the New York Stock Exchange, although trading volume was relatively modest -- which could suggest the eight-week-old rally is running out of gas, some analysts warn.

Asian markets soared overnight after an index of manufacturing activity in China jumped to 50.1 in April from 44.8 in March -- the first close above the 50 mark since July. Any reading over 50 indicates that activity is expanding.

The Shanghai composite stock index rose 3.3% to its highest level since early August. It’s up nearly 41% this year.

The Mexican market rocketed 5% to its highest since early January as fears ebbed that the swine flu outbreak would cause lasting damage to the economy. The government said most businesses that were shut down in recent days to help stem the outbreak would reopen Wednesday.

Stocks also surged across Europe. The German market jumped 2.8%. Russia's market rose 4.1%.

On Wall Street sentiment was helped by a report that pending home sales rose for a second straight month in March.

In recent weeks, "green shoots," or signs of improvement in the economy (the term was coined by Federal Reserve Chairman Ben S. Bernanke), have been eagerly received by investors who’ve been looking for reasons to jump back into equities after the long bear market. . . .

Much of the data have just hinted that the U.S. recession was bottoming, not that a recovery was imminent. But the news has been good enough for market bulls.

Worries about the U.S. financial system, meanwhile, have receded into the background. Investors weren’t fazed by rumors Monday that the government would force Bank of America Corp., Wells Fargo & Co. and other big banks to raise more capital after "stress test" results are announced Thursday.

Wells’ shares soared $4.64, or 24%, to $24.25 after the bank's biggest investor, Warren Buffett, said he remained bullish about its prospects -- although it would be hard to imagine him saying anything else, given his nearly 7% stake in Wells.

Financial stocks in the S&P 500 were up 10.1%, on average. All 10 major S&P industry sectors rose in the session.

"This was one of those days when nobody wanted to get in the way of the momentum," said Art Hogan, market analyst at Jefferies & Co. in Boston.

But he said trading volume was unimpressive for such a big day. Heavy volume would indicate that money was pouring in from the sidelines; light volume suggests that the market is dominated by short-term traders.

Phil Roth, market analyst at Miller Tabak & Co. in New York, said he has been encouraged by the breadth of the rally in recent weeks, as stocks have advanced across most major industry sectors.

But like Hogan, Roth finds the weak volume concerning.

"I don’t see signs that it’s over because it’s been very broad," he said. "But it’s late because the volume has dropped way off."

-- Tom Petruno and Walter Hamilton

Photo: Trading in Brazil's stock futures pits in Sao Paulo. Brazil's main market index soared 6.6% today, leaving it up 34% year to date. Credit: Mauricio Lima / AFP Getty Images

Comments

[srla]

Could it be that the volume is so low because the majority of investors aren't buying into the press's positive spin on what is essentially minimal good news while downplaying an overwhelming volume of negative news?

Take Monday's supposed "good news" in housing - that construction was up slightly and that sales CONTRACTS on existing homes edged up a mere 1.1% over last years abysmal levels. Setting aside the fact that fewer contracts are converting to sales this year due to the difficulty of obtaining loans, there is a staggering amount of evidence that the housing market has not only not bottomed but is, in fact, about to take its worst plunge yet over the next 9 months or more.

First off, NODs hit a record high in CA in Q1 of this year (almost 140,000, or twice the level of Q4 of '08). As foreclosures generally lag NODs by 6 months, we can expect the highest level of foreclosures yet this summer into fall.

Next, we have the coming tidal wave of alt-A and option-ARM resets, which should dwarf the last wave of subprime defaults, especially in the coastal areas, where subprime loans were less common.

Third, we have the well documented abuses of HELOCs in many of the tonier areas, as was documented this weekend in the Irvine Housing Blog. Some people took HELOCs up to 5 million dollars off homes in which they had invested little to no cash down payments. These enormous and abusive HELOCs were used to finance high spending lifestyles and pay for large mortgages. When those mortgages recast this year and the HELOC cash runs out, disaster will strike.

Fourth, we have a growing shadow inventory of approximately 70% of foreclosed homes withheld from the market by banks fearful of flooding the marketplace. This inventory will only grow for the above mentioned reasons, and the banks can only hold out for so long as the properties on their balance sheets decay.

Fifth, unemployment locally is at 10% and showing no signs of letting up any time soon. Rents dropped 4% last year and generally plunge as the unemployment rate goes up. Further depressed rents will only worsen things in the housing market as would-be buyers will have added options to rent more for their money while they wait for a true bottom.

There are many more reasons why real estate will continue its plunge, including a huge inventory (a staggering 19 million empty homes nation-wide). But the point is, there are many, many reasons to believe that housing is nowhere near bottom, yet the equities markets ignored all this and chose to rally on the thinnest wisp of good news (the 1.1% uptick in contracts). Is this at all rational? Or is it instead further proof that this is a thin and irrational bear market rally that is doomed to end sooner rather than later?