Improvement in a key measure of consumer confidence boosted financials into the black early Tuesday, and despite a mixed view of new housing data, bank stocks inched ahead for the day.
The KBW Bank Index closed up 0.7% after falling into the red in early afternoon trading. The Dow Jones industrial average gained 0.2% and the Standard & Poor's 500 rose 0.4%.
Gainers included BB&T Corp., 1.4%; Popular Inc., 2.8%; Frontier Financial Corp. in Everett, Wash., 11%; and Century Bancorp Inc. in Medford, Mass., 14%.
Investment pros cautioned against reading much into Tuesday's swings, noting that trading was light — about 25% below normal levels — with much of Wall Street on a summer-ending vacation. Markets tend to swing from positive to negative, and vice versa, on light trading days, said James Paulsen, chief investment strategist at Wells Fargo & Co.'s Wells Capital Management.
"There's no one around, hardly anybody trading," Mr. Paulsen said. "On a slow day, a little bit of money can move the market a long way."
Bank stocks got an early bump after the Conference Board, an independent research firm in New York, said its index measuring consumer sentiment rose 5 points from the previous month, to a reading of 56.9 in August. This was its highest level since May and 4 points higher than economists polled by Thomson Reuters had forecast on average. The jump came during a month when gasoline prices fell in most states, relieving pressure on consumer pocketbooks.
But stocks were quickly pushed into the red Tuesday afternoon after some investors found renewed reason for concern in new data that showed housing, the thorn in the consumer-driven economy's side for the past year, remains on shaky ground. Market observers said that as long as housing shows signs of weakness, investors are likely to remain wary of banks' mortgage losses, and this likely will keep trading of financials on a volatile path.
Notable decliners included companies hard hit by loan losses: SunTrust Banks Inc. lost 2.5%, and National City Corp. lost 2%.
Bank of Montreal, the first big Canadian bank to report earnings this week, said its profit for the fiscal third quarter, which ended July 31, fell 21%, to $494 million, or 95 cents a share, hurt by higher provisions for credit losses tied to the U.S. housing market. Its shares closed down 0.2%.
But the overall midday drop in stocks was erased after economists began issuing reports on a silver lining in the batch of housing data.
The Commerce Department reported that July sales of new homes, at a seasonally adjusted annual rate of 515,000, were down 35% from a year earlier but up 2.4% from the previous month.
The Office of Federal Housing Enterprise Oversight reported Tuesday that home prices fell 4.8% from a year earlier in the second quarter, the biggest drop in survey's 17-year history. And the S&P/Case-Shiller June home-price index of 10 major metropolitan areas plunged 17% from a year earlier, a record drop.
However, Mark Vitner, an economist at Wachovia Corp., said that while the new data indicate home prices may not hit bottom in the weakest markets for another year, price declines appear to be moderating. He called the development "encouraging." In the nation's 10 largest metropolitan areas, the S&P/Case-Shiller index showed June home prices fell 0.6% on average from May; they fell 1% from the previous month in May. That's notably better than the 2% or greater monthly declines reported during the first four months of the year.
"So while things clearly haven't bottomed out, I think the worst is behind us," Mr. Vitner said. "The numbers aren't great, obviously, but under the circumstances they actually are about as good as you could reasonably expect."