What Caused the Recent Stock Boom?

What caused the recent stock boom?

The major U.S. stock index scores kept up the recent winning trend today, and have now risen to their highest levels in recent months. The up trend is caused by many factors, not the least of which is an unexpected number of quarterly results beating their estimates and a trickling upward in the home sales data.

That’s right — good news from the real estate market. Stocks are booming on news that existing home sales rose for the third consecutive month as reported from June. This boost in confidence for the stock market put to bed any previous qualms about the market. Some were saying this boom was based solely on those better than expected quarterly results, and that more evidence was needed that the economy may be turning around. For those skeptics, the new home sales numbers seems to have been the final straw.

The Dow Jones industrial average also hit a high mark, breaking through the 9,000 point for the first time since early January, this also a result of the National Association of Realtors announcing that sales of pre owned homes were 3.6% higher in June at 4.89 million annualized units, up from 4.72 million units in May. The new figures from the home market indicate a growth that is quicker annually than predicted by market analysts. With a projection for 4.84 million units in June, the analysts were under by almost 50,000 homes. This lifted shareholder’s hopes that the housing market may be heading in the direction of a gradual recovery.

On Thursday June 23, the Dow Jones industrial average gained 182. 43 points, or 2.1%, to jump to a volume of 9,063.69. The Standard & Poor’s 500 Index added 22.17, or 2.3%, to close at $976.24, and the Nasdaq Composite Index shot up by 46.47, or 2.4% of its volume, to close at 1,972.85, all during a Thursday afternoon trading session.

Some stand out stocks include 3M, whose shares enjoyed heavy buying traffic on Thursday — the stock’s value closed up by $3.93, or 6.1% volume, to end at $68.60. 3M is a highly diversified tech company who recent press conference indicated that swine flu (or H1N1) fears helped sales of their respiratory masks, proving that H1N1 is having some major social and economic results. Overall though, 3M blames their good streak on “greater demand for consumer electronics”.

The recent boom in stock values is largely influence by the announcements of several companies who indicated they made more money than expected. The Dow is now up nearly 40 percent from low marks in early March of 2009. Ford Motor Co., AT&T Inc., and the aforementioned 3M Co. are just a few of the assets that have recently reported earnings that beat analysts’ expectations.

It is good to see all financial markets trending upward — it isn’t just the New York Stock Exchange, but also the Nasdaq and the S&P 500 who are also showing growth, with each one up over 2 percent today from previous highs.

Many analysts are slow to give credit to any one factor for the recent up trend in the stock market. Many say that the recent gains can be attributed not juts to companies beating their earnings estimates, but to investors coming back into the market because they don’t want to miss what is perceived as a rally, and the public’s perception that the economy is starting to recover, slowly but surely.

Another indicator of what might be causing a market boom — the tech heavy Nasdaq Composite Index, which was already on an 11-day winning streak coming into Thursday’s action, was up over 2%, helped analysts say by major gains in two of its high-profile funds following business’ quarterly reports. One major holding, EBay, was up by 10% after the online auctioneer announced that current quarter results would top analyst estimates. Interestingly enough, it was EBay’s rival, online retailer Amazon.com, that also bolstered the Nasdaq’s winning streak — Amazon gained 5.5% after announcing a surprising to all (including the CEO) profit increase. It didn’t hurt that Amazon also recently acquired major online shoe retailer Zappos.com. So is it tech stocks that are leading the financial boom right now?

Not necessarily — just look at shares of SanDisk, which plunged 13% in a day after the computer chip maker announced strong recent profits but what some analysts saw as “a disappointing outlook”. Recently, most stock analysts have downgraded the value of SanDisk to a neutral or average rating, with one reviewer saying: “Top-line weakness raises concerns about the demand environment and we believe partially reflects weaker consumer spending.” It seems that investors are still wary about tech stocks after the boom and crash in the late 90s / early 2000s.

What other sectors won big recently in the stock market? Health care, for one. Bristol-Myers announced their better than expected results (beginning to sound like a broken record?) and announced a plan to buy the much smaller Medarex company for $2.4 billion. Bristol-Myers shares were up a solid 1.6% on the day, while Medarex was the big winner, up 89%. Another health care company that did good for themselves — Wyeth, whose earnings also beat expectations. That pushed the value of the drugmaker’s shares up a full 1%.

Investors may also have responded to President Barack Obama’s press conference Wednesday evening regarding proposed health care legislation. If this is the case, they seem to have reacted positively — traders are notoriously nervous about any big moves by the Commander in Chief, and traders have been nervous about Obama’s health care package, whether it would face any major delays, if the plan could effectively control costs, if the plan would leave customers room for choice, etc.

Whatever the reason, the market is turning back into a solid investment. Part of the mini boom we’re experiencing could just be people returning to the market because their confidence has been restored.