Stocks Bounce Back as Confidence Soars

Stocks bounced back from a lower open Tuesday as consumer confidence hit its highest level in eight months and a broker upgrade on Apple buoyed the Nasdaq.

Getting the market off to a jittery start after the three-day weekend, the decline in housing prices showed no signs of letting up and there were reports of another missile launch by North Korea.

Still, the Dow Jones Industrial Average was up more than 150 points, or 2 percent. The S&P 500 and Nasdaq also gained, with the Nasdaq logging the best gains of the three indexes.

This comes after a late selloff sabotaged Friday's rally amid concerns about a possible downgrade of the U.S.'s credit rating. For the week, stocks finished slightly higher. Financial markets were closed Monday for the Memorial Day Holiday.

The Conference Board's consumer-confidence index jumped to 54.9 in May from a revised 40.8 in April, well above the 42 economists had expected.

But a housing report was a sober reminder that the economy isn't on the mend yet: The S&P Case-Shiller home-price index tumbled 19.1 percent in the first quarter, the biggest quarterly drop in the measure's history. For the month of March, 15 of 20 major metropolitan areas posted double-digit declines from a year earlier. Nationwide, home prices are at 2002 levels.

And North Korea fired two short-range missiles Tuesday off its east coast, Yonhap news agency quoted a South Korean government source saying, leaving the market on edge.

Market pros said traders are going to be very focused on some key points of the economy, including the dollar and rising oil prices, as well as geopolitical tensions that could derail any recovery.

Investors will also pay close attention to General Motors this week as the government’s June 1 restructuring deadline looms.

The United Auto Workers starts voting today on new cost cuts it agreed to with General Motors last week. The Canadian Auto Workers union approved a new round of concessions on Monday, which will cut GM’s hourly labor costs there by 30 percent.

GM’s bondholders must decide by Tuesday whether to swap their debt for stock — GM wants to cut about 90 percent of its $27 billion in bond debt, a target analysts polled by Reuters believe is unreachable.

Three state-run funds in Indiana are reportedly asking a judge to review Chrysler’s plan to exit bankruptcy. But the ailing automaker said any delay in the bankruptcy process could derail the more than $10 billion in financing promised by the U.S. and Canadian governments. That money will only be provided if Chrysler’s sale to Fiat is completed by mid-June.

Apple rose after Morgan Stanley ugraded the iPhone and iPod maker to "overweight," saying the company has emerged as the clear leader in the battle over the mobile Internet and that the iPhone will drive earnings growth in the next few years.

General Electric shares were down in morning trading after CEO Jeff Immelt said growth will be "harder to come by" in the next few years as any economic recovery is likely to be slow.

Bank stocks were mixed: Citigroup , JPMorgan and Wells Fargo rose, while Bank of America and SunTrust declined.

A greater test of market sentiment comes later in the week with the U.S. Treasury’s note auctions totaling $101 billion. The government will sell two-year notes on Tuesday, five-year notes on Wednesday and a seven-year paper on Thursday.

Crude oil dropped about a dollar, trading between $60 and $61 a barrel ahead of OPEC's meeting Thursday to decide about oil-output levels. Many believe the oil cartel will leave production unchanged as oil prices and demand have recently made a comeback.

Lehman Brothers’ U.S. estate administrators will seek approval for coordinated bankruptcy proceedings for its subsidiaries worldwide, putting them at odds with its UK administrators, the Wall Street Journal reported.

Freddie Mac plans to sell about $1 billion in commercial mortgage bonds backed by multi-family loans on Tuesday. It’s the first time a commercial mortgage bond is being auctioned with the backing of a government-sponsored enterprise. It’s also the first commercial mortgage bond deal in almost a year.

And the Obama administration will announce it plans to spend $4 billion to create so-called “green jobs” in the public housing sector. The money will come from the $787 billion economic stimulus package and will be used to make public housing more energy efficient. An additional $500 million will go towards training workers for these new jobs.

This Week:

TUESDAY: Conference Board consumer-confidence index
WEDNESDAY: Weekly mortgage applications; existing-home sales; Earnings from Dollar Tree, Staples and American Eagle
THURSDAY: Weekly jobless claims; durable goods; new-home sales; weekly crude inventories; Fed's Fisher speaks; Earnings from Costco, Sears and Dell
FRIDAY: GDP; Chicago PMI; University of Michigan/Reuters consumer sentiment; earnings from Tiffany

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