S&P 500 Overreacts to Housing, Job Improvement

The Standard and Poor's 500 index climbed to another five-year high after strong reports on housing starts and unemployment claims made investors more optimistic about the U.S. economy.

U.S. builders started work on homes in December at the fastest pace since the summer of 2008, the Commerce Department said Thursday. The S&P 500's homebuilding index climbed 3.8 percent, its biggest gain in almost a month.

The number of Americans seeking unemployment benefits fell to a five-year low last week, the Labor Department reported, the latest sign that the job market is healing.

But Kim Caughey Forrest, a senior analyst at Fort Pitt Capital Group, said it was too early to conclude that the housing market had turned the corner. She noted that a large "shadow inventory" of houses that still need to be foreclosed on may weigh on house prices in the coming months.

Housing Remains on Growth Track for 2013

"This rally is probably a little bit too optimistic for the information that we got," Caughey Forrest said. "There's some conflicting information here and the market has just decided to overlook the negative thing."

The indexes powered higher even as more discouraging news about manufacturing came out.

(more on housing's effect on stocks . . . )

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