Despite awful outlook, housing stocks rise

After today's dismal report on new-home sales and terrible earnings news from home builder KB Home (KBH, news, msgs), how could anyone like housing stocks?

Somebody likes them because builder stocks were among the top performers in today's stock market.

In fact, the Philadelphia Housing Sector Index ($HGX.X) finished up 1.7% today to nearly 159, second best among the 41 indexes that Market Dispatches tracks; 35 of the indexes were higher. KB Home, in fact, had an even better day -- it was up 2.6% to $24.71.

It could be that the market was reacting favorably to a comment from Fannie Mae (FNM, news, msgs) CEO Daniel Mudd, who said he thought the bottom of the current housing slump wouldn't come until the end of next year.

That candor from the head of the nation's largest supplier of mortgage funds made some bargain hunters nibble at the group.

• Check out how home builders fared today

Meanwhile, the Dow Jones industrials finished up about 35 points to 13,913, putting the blue-chip index within 90 points of its all-time high of 14,000.41, set on July 19.

The Standard & Poor's 500 Index finished up nearly 6 points to 1,531, and the Nasdaq Composite Index added about 11 points to just under 2,710.

While the overall results were modest and trading volume light, the rally was undeniably broad. Gainers were ahead of decliners 2-to-1 on the New York Stock Exchange and 1.4-to-1 on Nasdaq.

The market was helped by what's been its strength all month: energy and technology.

Crude oil jumped 3.2% to $82.88, in part because of the falling dollar and worries that Tropical Storm Lorenzo might affect Mexico's offshore oil fields.

The Philadelphia Oil Service Sector Index ($OSX.X) jumped 1.6% to 299. Schlumberger (SLB, news, msgs) moved up 2% to $105.08. ExxonMobil (XOM, news, msgs) was up 0.6% to $92.96. Apache (APA, news, msgs) was up 2.6% to $90.41.

Tech stocks were paced by strength in Juniper Networks (JNPR, news, msgs), up 3.3% to $36.32, and Apple (AAPL, news, msgs), up 1.1% to $154.50.

Energy prices -- New York close

	Mon.	Fri.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$82.88	$80.30	$2.58	11.94%	35.76%
Heating oil (per gallon)	$2.2521	$2.1826	$0.0695	10.28%	40.94%
Natural gas (per million BTU)	$6.9190	$7.0460	-$0.1270	26.54%	9.84%
Unleaded gasoline (per gallon)	$2.0939	$2.0274	$0.0665	2.05%	30.70%

But it's still a lousy housing market

There's no end in sight to the housing slump -- that's essentially what home builder KB Home and the Commerce Department both said this morning.

KB Home's third-quarter earnings report showed just how bad the housing business is at least for builders. The company reported a loss of $35.6 million, or 46 cents per share, down from a profit of $153.2 million, or $1.97 per share, a year ago. Revenue fell 32% from a year ago to $1.54 billion.

Those numbers actually mask the harsh reality the company faces because the results included a big gain from the sale of the company's French operations.

From its domestic business, KB Home reported a loss of $478.6 million, or $6.19 per share. And CEO Jeffrey Mezger said in a statement that "the oversupply of unsold new and resale homes and downward pressure on new home values has worsened in many of our markets."

And, he added, "at this time, we see no signs that the housing market is stabilizing and believe it will be some time before a recovery begins."

• Get free, real-time stock quotes on MSN Money

New-home sales plunge

At least KB Home can say it's not alone. The Commerce Department said sale of new homes fell 8.3% in August and 21% from a year ago to a seasonally adjusted annual rate of 795,000 -- the worst level since June 2000.

The level was worse than analysts' expectations of 825,000.

The median sales price fell 7.5% to $225,700 in August from $242,627 last year -- the biggest year-over-year drop in 37 years.

• Video: Today's ugly home-sales news

Today's news follows Tuesday's report from the National Association of Realtors that said existing-home sales fell in 4.3% in August to a five-year low. Also on Tuesday, the nationwide S&P/Case-Shiller home-price index showed that July's decline in U.S. housing prices was the steepest drop in 16 years.

Waiting for the quarter's end

The stock market modest gain today was due in part to the third quarter's end on Friday. Many big investors, especially mutual funds, don't want to make big bets ahead of that date. Alcoa (AA, news, msgs) was the Dow leader, up 1.4% to $39.

Nineteen of the 30 Dow stocks were lower today, while more than 300 S&P 500 stocks were higher.

General Motors (GM, news, msgs), Wednesday's big star with a 9.4% gain, was today's laggard, off 3.1% to $36.46, a probable victim of profit-taking.

The third quarter, despite all the violent drama between mid-July and mid-August, not to mention the Federal Reserve's big rate cut on Sept. 18, will actually show decent results. The Dow is up about 3.8% with a day to go.

The S&P 500 is up about 1.9% for the quarter with big gains in energy stocks offset by weakness in financial stocks overall. Countrywide Financial (CFC, news, msgs), the focal point of concern about the possible collapse of the housing finance industry, is off about 48% for the quarter despite a 2.7% gain today to $18.87.

The Nasdaq is up nearly 4.1%, thanks to gains of 37% and more in such stocks as Amazon.com (AMZN, news, msgs), Juniper Networks and Nvidia (NVDA, news, msgs).

Procter & Gamble (PG, news, msgs) is the Dow leader, up 14.6%; Home Depot (HD, news, msgs) is the laggard, down nearly 17%.

Economy is still growing . . . for now

There was some good economic news today. The Commerce Department said the U.S. economy grew at a 3.8% annual rate in the second quarter of the year, slightly below economists' estimate of 4% growth but the strongest growth rate in a year.

Growth isn't expected to be as strong in the second half of 2007, however, because of the mortgage- and credit-market crunches.

The economy grew only 0.6% in the first quarter of the year.

• Video: More on today's economic data

Separately, the Labor Department reported today that initial jobless claims fell by 15,000 for the week ending Sept. 22 to 298,000. That was the fewest jobless claims since the week ending May 12.

Will this deal get done?

The fate of the $25 billion buyout of student lender SLM Corp. (SLM, news, msgs), commonly known as Sallie Mae, is up in the air. Late Wednesday, investment group J.C. Flowers attempted to back out of its planned $60-per-share deal with Sallie Mae, claiming that a new law will cut subsidies to student-loan providers like Sallie Mae. Flowers also said that the slowing economy has changed the landscape for the deal.

During the regular session, investors appeared to be optimistic that the two sides will be able to renegotiate: Shares of Sallie Mae rose more than 9% to $49.12 and was the top-performing stock in the S&P 500.

In after-hours trading, however, Sallie Mae shares dropped more than 8% to $45.01. That may have been in reaction to President Bush's signing a bill that cuts subsidies to lenders like Sallie Mae.

In the Sallie Mae deal, Flowers, which is run by J. Christopher Flowers, a former managing director at Goldman Sachs (GS, news, msgs), is the lead player in an investment group that also includes Bank of America (BAC, news, msgs) and JPMorgan Chase (JPM, news, msgs).

Sallie Mae, the biggest student lender in the U.S., said the company "firmly believes that the buyer group has no contractual basis to repudiate its obligations under the merger agreement and intends to pursue all remedies available to it to the fullest extent permitted by law."

New legislation will cut government subsidies to student lenders by nearly $21 billion over the next five years; Flowers said that the law would reduce Sallie Mae's net income by up to 2.1% over the same time period.

Starbucks is downgraded

Bank of America analyst Andrew Barish is actually bearish on Starbucks (SBUX, news, msgs).

Barish cut Starbucks to "sell" from "neutral," citing the likelihood that growth will slow at the coffee chain.

• Video: How much health insurance do you need?

The analyst said that increased competition from restaurants like McDonald's (MCD, news, msgs) and weak consumer demand would contribute to expected slowing sales.

Starbucks shares fell 2.6% to $26.75 this afternoon. The stock is down about 24% this year.

Maybe nobody will invest in Bear Stearns

Bear Stearns (BSC, news, msgs) was the talk of Wall Street again today.

On Wednesday, Bear Stearns shares shot up $8.76, or 7.6%, to $123.00 per share after talk circulated that the company was interested in selling a stake of itself.

This afternoon, the stock abruptly dropped nearly $5 to a low of $119.60 after CNBC's David Faber reported that Bear Stearns officials said they weren't talking to anybody -- not Warren Buffett, Bank of America, Wachovia (WB, news, msgs) or a Chinese bank.

The stock recovered some of that loss, finishing at $121.15, down 1.5%.

Buffett was an unlikely investor in the troubled investment bank, Dick Bove, analyst at Punk, Ziegel, told CNBC this morning.

• Video: Bargain hunting around the globe

On Wednesday, Bove told MSN Money that the investment bank needs to partner with another financial institution for three reasons:

• Its balance sheet is not strong enough to handle the type of obligations it's had historically, because the quality of its paper has been downgraded in the marketplace by the market transactions; therefore its cost of money is rising.

• Bear needs to hook up with a financial institution that can bring in new products.

• Bear Stearns' business tends to be very domestically oriented; it's missing the faster growth occurring in the financial markets overseas.

"It would be most effective for them if a financial institution from Europe or Asia took a stake in Bear," Bove said.

Bed Bath & Beyond profit beats The Street

Bed Bath & Beyond (BBBY, news, msgs) reported better-than-expected earnings late Wednesday. But shares of the stock dipped 1.1% to $33.45, as worries about the broader housing market spilled over to the home-furnishings sector.

The retailer said it earned $147 million, or 55 cents per share, in the second quarter, up from $145.5 million, or 51 cents per share, in the same period last year. Wall Street was expecting earnings of 52 cents per share.

Revenue rose 10% to $1.77 billion, in line with analysts' estimates.

Sales at stores open at least one year rose 2.2% in the quarter, thanks in part to back-to-school sales.

'Halo 3' sales are huge

The debut of Microsoft's (MSFT, news, msgs) "Halo 3" is to video games what Apple's iPhone is to cell phones and Scholastic's (SCHL, news, msgs) "Harry Potter and the Deathly Hallows" is to books: a record smasher.

The new video game brought in a record $170 million in sales in its first 24 hours on the shelves, Microsoft said late Wednesday. "Halo 3" went on sale at midnight Monday. (Microsoft is the publisher of MSN Money.)

The video game's sales were "overwhelmingly impressive," Michael Pachter, an analyst at Wedbush Morgan Securities, said to The Wall Street Journal. Pachter added that the game's sales were "probably unprecedented."

"Halo 3" beat the record previously held by its predecessor, "Halo 2," which took in $125 million in U.S. sales on its first day on the market three years ago.

Microsoft shares were down 1 cent to $29.49.

Short hits from the markets -- 4 p.m. ET

	Mon.	Fri.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	3.600%	3.625%	-0.025	-9.77%	-26.31%
5-year Treasury note yield	4.217%	4.256%	-0.039	-0.80%	-10.30%
10-year Treasury note yield	4.573%	4.620%	-0.047	0.79%	-2.91%
30-year Treasury bond yield	4.837%	4.893%	-0.056	0.12%	0.39%
Currencies
U.S. Dollar Index	78.25	78.40	-0.16	-2.90%	-6.03%
British pound in dollars	$2.0255	$2.0165	0.0090	0.36%	3.36%
Dollar in British pounds	£0.4937	£0.4959	-0.0022	-0.36%	-3.25%
Euro in dollars	1.4150	1.4136	0.0014	3.79%	7.20%
Dollar in euros	€ 0.7067	€ 0.7074	-0.0007	-3.65%	-6.72%
Dollar in yen	¥115.64	¥115.44	0.20	-0.10%	-2.84%
Commodities
Gold	$739.90	$735.50	$4.40	8.51%	15.97%
Copper	$3.6480	$3.6140	$0.034	7.39%	27.06%
Silver	$13.6450	$13.5450	$0.10	11.57%	4.72%
Crude oil (NYMEX) (per barrel)	$82.88	$80.30	$2.58	11.94%	35.76%

By Charley Blaine and Elizabeth Strott