U.S. stocks opened higher, showing resilience in the face of crumbling equity and bond prices in Europe in the aftermath of Italian election results that point to tumultuous days ahead in the drive for austerity measures. Two better-than-expected readings on the U.S. housing market - plus surprising gains in the country's consumer confidence - helped to underpin the rally on Wall Street.
In early trading, the S&P 500 index was up 8 points, or 0.5 per cent, at 1,495; and the Dow Jones industrial average was up 83 points or 0.6 per cent, at 13,868. Oil was hovering near unchanged while gold prices were up nearly $10 at $1,596 (U.S.) per ounce. In Toronto, the S&P/TSX composite index was just slightly in negative territory.
European stocks were down sharply as Wall Street opened, but were off their lows from earlier this morning. Italy's FTSE MIB index was down 3.6 per cent, after dropping more than 4 per cent. The FTSE 100 in London was down 1.1 per cent, Germany's DAX 1.6 per cent and France's CAC 40 1.5 per cent. Major Asian indexes overnight were also sharply lower, led by a 2.2 per cent decline in Japan's Nikkei index.
Some traders are betting that the political stalemate in Italy, which has ignited renewed fears over the European debt crisis, was already factored into U.S. stocks on Monday when the S&P 500 tumbled 1.8 per cent, its biggest dip since early November.
As the Globe's Eric Reguly writes this morning, the Italian election produced no clear winner, with a surprisingly tight three-way race between Pier Luigi Bersani’s centre-left coalition, Silvio Berlusconi’s centre-right coalition and the upstart, anti-establishment Five Star Movement of Beppe Grillo. Caretaker prime minister Mario Monti’s centrists were all but destroyed.
While the centre-left barely won the lower house of parliament, there was no clear winner in the upper house – the senate. A majority in both houses, which rank equally, is required to govern. Particularly worrisome for investors was the strong showing of Mr. Berlusconi and Mr. Grillo, who delivered strong anti-austerity messages during their campaign.
Borrowing costs in Europe continue to creep up this morning, with Italian 10-year bonds seeing yields now up 35 basis points to 4.78 per cent. Bond yields in Spain, Portugal and Greece are also up sharply today.
But the news out of the United States today has fed into the belief this year's rally in stocks isn't over yet. New-home sales posted the biggest monthly jump in nearly two decades last month, rising 15.6 per cent from December to a seasonally adjusted annual rate of 437,000. That's the highest since July 2008. Meanwhile, the S&P Case-Shiller 20-city home price index for December showed an impressive gain of 6.8 per cent from a year ago, the biggest jump since 2006 and a bit higher than the 6.62 per cent rise expected by economists. Housing stocks are rallying, with PulteGroup Inc. up nearly 4 per cent.
The recovery in the housing market is surely making Americans feel more positive about their own economic situation. Consumer confidence in February was at 69.6, according to the Conference Board, a better reading than the 62 that was expected.
Meanwhile, the Federal Reserve's Ben Bernanke is testifying before Congress today and Wednesday. Prepared remarks released this morning showed his continued support for bond-buying programs that have been aiding the economic recovery.
History suggests his appearance could be helpful for the stock market: Over the past six years, the S&P 500 index has finished higher nine out of 12 times during the two-day testimony, according to an analysis from MarketWatch.
This time around, however, it may be tough for markets to gain much enthusiasm given that the so-called sequester - more than $80-billion in government spending cuts - is set to start kicking in on Friday unless there's some political intervention. So far, there are no talks scheduled between the Republicans and Democrats. The cuts could dampen U.S. gross domestic product in the months ahead.
Here's a look at some key stocks on the move this morning:
Bank of Montreal reported adjusted earnings of $1.52 a share in its latest quarter, beating the median Street view of $1.47, even while its overall profit fell 5 per cent. It also raised its dividend. Shares are up just under 1 per cent.
Home Depot Inc. reported a 32 per cent jump in fourth-quarter earnings, with both profit and revenue beating analyst predictions. Shares are up 3 per cent at the open.
Telus Corp. is ramping up its presence in health care with a deal to acquire Ontario’s largest provider of electronic medical records. Terms are not yet known. Shares in Telus are down 0.5 per cent at the open.