Housing slump fears hit US stocks
Wall Street fell for a third straight session today as fresh signs of a housing slump triggered concerns that the economy is slowing too fast and could erode corporate profits.
Investors believed that housing sales might be dropping more rapidly than anticipated, and theorised that a soft landing for the US economy might be more difficult to achieve.
The report from the National Association of Realtors that sales of previously-owned homes dropped in July to a pace of 6.33 million units, the lowest since January 2004.
The data comes after a Federal Reserve official hinted yesterday that higher interest rates may still be needed to tame inflation, a move that could curtail consumer spending.
Retailers and homebuilders, which have the most exposure to consumers, led major indexes lower.
“Housing is a relatively important number and clearly an area that has been a driver for the economy, and now we’re trying to figure out if the Fed is done or if it needs to do more,” said John Caldwell, chief investment strategist for McDonald Investments, the securities unit of Cleveland-based KeyCorp.
“The focus now is on housing as the market shifts away from inflation and toward growth,” he said. “The question is has the Fed done too much, and is housing going to lead us down?”
The Fed left interest rates unchanged earlier this month after increasing them 17 straight times over the past two years. The markets had rallied since then on hopes that this would be the end of rate hikes.
The Dow Jones industrial average fell 41.94, or 0.37%, to 11,297.90.
Broader stock indicators also fell. The Standard & Poor’s 500 index fell 5.83, or 0.45%, to 1,292.99, and the Nasdaq composite index dropped 15.36, or 0.71%, to 2,134.66.
Bonds bounced, with the yield on the benchmark 10-year Treasury note touching a multi-day high at 4.84% before dropping back to yesterday’s close of 4.81%. The dollar was mixed against other major currencies, while gold prices moved lower.
Oil prices declined after US government data showed rising supplies of gasoline as refiners increased output. Light sweet crude for October delivery fell 1.34 dollars to 71.76 dollars a barrel on the New York Mercantile Exchange.
US homebuilder stocks, already trading near yearly lows as housing sales remain depressed this summer, pulled back after the data was released. Toll Brothers dropped 65 cents, or 2.6%, to 24.55 dollars. Pulte Homes, the largest US homebuilder, fell 1.02 dollars, or 3.5%, to 28.09 dollars.
Borders Group led a decline in retailers, tumbling 46 cents, or 2.3%, to 19.80 dollars. The book retailer reported a second-quarter loss, and issued a disappointing outlook.
With light summer trading, these stocks could see further fluctuations tomorrow with more economic data coming out, including durable goods orders and new home sales for July.
“We’ve had this fixation on the interest rate increase cycle, and now that it’s moved to the middle burner, what’s on the front burner is economic growth,” said David Darst, chief investment strategist of the Morgan Stanley’s global wealth management group. “The housing market is a barometer for prices, wealth and the consumer state of mind.”
He pointed out: “We’re in the summer doldrums, and just the slightest puff of wind can move the market apparently quite a ways.”
Wall Street shrugged off National Semiconductor Corp’s warning that first-quarter revenue will come in lower than expected due to sluggish shipments of wireless handsets.
The California-based company, which makes chips that control power consumption in electronics, also said revenue was hurt by fewer overall shipments and reduced foundry revenue from divested businesses.
Analysts say the drop-off in sales was to be expected during a typically slow summer period. Shares of National Semi rose 79 cents, or 3.5%, to 23.37 dollars.
Computer maker Gateway jumped 23 cents, or 13%, to 1.95 dollars after the company received an unsolicited offer from eMachines’ founder Lap Shun Hui to acquire its retail operations for 450 million dollars. Hui, Gateway’s second largest shareholder, sold his business to Gateway in 2004.
IBM dropped 28 cents to 78.67 dollars after it announced the 1.3 billion dollar acquisition of Internet Security Systems for 28 dollars per share. Internet Security Systems surged 1.62 dollars, or 6.2%, to 27.62 dollars.
Declining issues outnumbered advancers by almost two to one on the New York Stock Exchange, where volume came to 1.224 billion shares, compared to 1.223 billion traded at the same point yesterday. On the Nasdaq, decliners outnumbered advancers by an almost two to one basis.
The Russell 2000 index of smaller companies tumbled 9.34, or 1.32%, to 698.42.
