U.S. home-building stocks rallied amid optimism the companies will report stronger-than-expected first-quarter earnings, helped by the still-vibrant housing market.
The Standard & Poor's home-building index was up 7% in early afternoon trading Thursday, while the S&P 500 index was off 1.3%. The home-building index-which tracks Kaufman & Broad Home Corp., Pulte Corp., and Centex Corp.-was up 19% over two days.
The rally came as Salomon Smith Barney analyst David Dwyer raised his recommendations on 14 home-builder stocks to "buy" from"outperform," saying that fears of a pullback in the housing market were exaggerated.
"There are no signs of the housing slowdown that the stocks are so obviously discounting," Mr. Dwyer said in a research note. Smaller so- called cyclical stocks linked to economic ups and downs have started to rebound, which also could help home builders, Mr. Dwyer said.
Many home-builder stocks have slumped during the past year on concerns that the economy will slow, undermining demand for new homes after a record pace of construction in 1998. The home-building index fell 32% from its July 14 high through Tuesday.
Most home builders are expected to release earnings starting next week. A handful have reported strong first-quarter orders and backlogs of homes under contract in the past two weeks. NVR Inc., M.D.C. Holdings Inc., and D.R. Horton each said they expected to beat analysts' earnings forecasts for the most recent quarter.
"The order trends came in better than expected," said James Wilson, an analyst at Jefferies & Co. "All the major companies will come in as good as expected and in most cases better than expected."
Earnings for 12 of the largest home builders rose 67% in the fourth quarter as the strong economy, low interest rates, and robust job growth fueled demand for housing.