Transcripts

Stocks Find Strength in Housing's Weakness

SUZANNE PRATT: A boost for stocks today in light trading ahead of the holiday weekend. The Dow jumped 66 points and the NASDAQ gained 19. The move was spurred in part by a weaker than expected April existing home sales report, which as Scott Gurvey reports, once again raised hopes for a Fed rate cut.

SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Although there are still three trading days left in the month, Wall Street pundits who suggested investors follow the well-known adage to sell in May are pretty certain to have egg on their faces when June arrives. Analysts say it is good news on the economy, coming on the heels of an earnings inspired April rally, which has so far pushed the averages up another 3 percent this month. Looking ahead, they see two possible risks to a rosy scenario. The first is the price of gasoline, which is expected to remain at a record high and may already be forcing a change in consumer buying habits.

The second is the housing market. Today, the National Association of Realtors reported existing home sales fell 2.6 percent in April to their lowest level in almost four years. The median price of a home sold fell by .8 of 1 percent and the number of previously owned unsold homes on the market represents a better than eight month supply. Senior market economist Drew Matus of Lehman Brothers says housing weakness puts the Federal Reserve in a tough position.

DREW MATUS, SENIOR MARKET ECONOMIST, LEHMAN BROTHERS: The housing market story is still playing out and there's danger there that the Fed acknowledges. But at the same time, inflation is too high. And so when you're not certain which direction you should move definitively in, you just stay where you're at.

GURVEY: But in the absence of more bad news on the housing or energy fronts or some unpredictable geopolitical event, many agree with equity strategist Scott Wren at AG Edwards, who is positive on the economy and the markets.

SCOTT WREN, SR. EQUITY STRATEGIST, A.G. EDWARDS: Its macro news that's going to be driving the economy. Basically, what we want to see and what we think we are going to see is just further confirmation that inflation is moderating and that growth, economic growth is going to be modest. We're looking for about 2.3 percent, 2.5 percent GDP for the U.S. this year. I think the Fed would be very happy with that. I think the market would be happy with it as well.

GURVEY: The market and the Fed will focus next on the employment report for May. That is scheduled for release one week from today. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.