U.S. stocks began the week with a solid rally, shrugging off a surprising drop in new home sales ahead of the first semi-annual Congressional monetary policy testimony from the new Fed Chief, Jerome Powell. Treasury yields were mostly lower, though the U.S. dollar was flat and crude oil prices and gold were all higher. Dean Foods was under some pressure after releasing a disappointing quarterly report, while in M&A action, Spectrum Brands Holdings and HRG Group announced an agreement to merge and Qualcomm proposed further engagement with Broadcom.

The Dow Jones Industrial Average (DJIA) surged 399 points (1.6%) to 25,709, the S&P 500 Index rallied 32 points (1.2%) to 2,780, and the NASDAQ Composite ascended 84 points (1.1%) to 7,421. In moderate volume, 813 million shares were traded on the NYSE and 1.9 billion shares changed hands on the NASDAQ. WTI crude oil gained $0.36 to $63.91 per barrel and wholesale gasoline added $0.02 to $2.00 per gallon. Elsewhere, the Bloomberg gold spot price was $4.73 higher at $1,333.44 per ounce, and the dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 89.86.

New home sales dropped 7.8% month-over-month (m/m) in January to an annual rate of 593,000 units, versus the Bloomberg forecast calling for 647,000 units and the upwardly revised 643,000 unit pace in December. The median home price was up 2.5% y/y to $323,000. New home inventory rose to 6.1 months of supply at the current sales pace from 5.5 in December. Sales fell m/m in the South and tumbled in the Northeast, while rising solidly in the Midwest and nudging higher in the West. New home sales are based on contract signings instead of closings, and were likely bogged down by the recent rally in interest rates, which is adding to the pressure on affordability along with the steady appreciation in home prices. The rough winter weather in the east likely also weighed on home buying activity.

Treasuries traded mostly higher, with the yields on the 2-year and 10-year notes declining 1 basis point to 2.23% and 2.86%, respectively, and the 30-year bond rate was nearly unchanged at 3.16%.

Schwab Center for Financial Research – Market Analysis Group

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