Financial stocks were mixed Tuesday, with some investors focused on the positive news in a mixed bag of economic data related to housing and consumer sentiment.
The NYSE Financial Sector Index rose 0.2% recently while the KBW Bank Index was 0.5% lower, compared with a 0.1% rise for the
Dow Jones Industrial Average
Despite a record decline in home prices during the second quarter, the S&P/Case-Shiller index's monthly data showed that the plunge began to ease in June. The Office of Federal Housing Enterprise Oversight also said on Tuesday that home prices fell at a decelerated pace in the second quarter, compared with the first.
The government released new home sales data on Tuesday as well, which supported the view that the housing sector may be slowly improving. July posted higher prices, lower inventories and better sales of new homes than in June, the Census Bureau said.
Combined with a Conference Board report that consumer confidence improved greatly last month, due to lower gas prices, the data seemed to suggest that the economy may be improving, albeit at a slow and rocky pace. The
also said it had issued $75 billion in its most recent auction of short-term loans for banks, part of an ongoing effort to ease tightness in the credit markets.
Beleaguered mortgage giants
led the financial-sector rally on a
that they may have enough capital to absorb losses this year.
Fannie also said its mortgage portfolio grew 14.4% in July, showing that the company is growing its business despite capital concerns. Still, the firm said its serious delinquency rate on conventional single-family mortgages rose to 1.36% in June from 1.3%.
Higher delinquencies, foreclosures and plunging home prices are sure to hurt both firms' results in coming quarters, even if consumers' financial health is strong enough to take on new mortgages. Though the companies have stated that they are adequately capitalized, speculation abounds as to whether they will have enough cash to weather the housing storm, or whether the government will have to step in to bail them out.
Comments from presumptive Democratic presidential candidate Sen. Barack Obama on Monday that the government would have to protect the firms from collapsing - but that "investors who have made a killing shouldn't be protected" - was the latest indication that in the event of a government takeover, owners of the troubled firms would be wiped out.
Nonetheless, Fannie shares surged as much as 20% and Freddie was up as much as 30% in morning trading. Recently, Fannie shares were up 8.5% to $5.63, while Freddie shares were soaring 18.8% to $3.91.Both stocks are still down more than 90% from year-ago levels.
Another government-sponsored enterprise,
, was rising 4.8% to $14.91, extending a rally since Friday. Last week, the nation's largest student-loan provider, better known as Sallie Mae, said government funding will allow it to issue about $20 billion in debt next year, easing worries that the credit crunch would extend further into higher education.
Elsewhere in the sector,
shares were down 1.2% to $44.54 after the firm said it had
acquired a majority stake
in an asset-management firm for $384 million in newly issued stock.
shares added 3.5% to $19.44 after the firm said it had acquired an 18% stake in a Chinese micro-lending group and the exclusive right to sell micro-credit insurance to MicroCred Nanchong China's clients for two years.