A negative sales forecast from home builder Toll Bros. on Tuesday cast doubt on the health of the housing market and sent stocks falling after four sessions of gains.
A softening in the real estate market, which had helped fuel economic growth for more than two years, could mean weaker consumer spending and a slowdown in the economy. Toll Bros.’ lower sales projections fed those fears, while disappointing forecasts from auto parts maker Visteon dragged down the auto sector as well.
Despite Wall Street’s two-week upswing, the news illustrated the problems that still face the economy and the stock market.
Yet even amid the market’s lingering worries, investors’ expectations of a year-end rally kept the day’s losses limited.
“With the Dow and Nasdaq having moved up the way they have, it’s only normal to see a bit of a pullback from time to time,” said Michael Sheldon, chief market strategist at Spencer Clarke. “But you still have a lot of seasonal factors to come into play. November through January has historically been great for stocks, and I think it’ll be almost a self-fulfilling prophecy as investors start trickling back into the market.”
The Dow Jones industrial average fell 46.51 points, or 0.4%, to 10,539.72. The Dow had gained 179.46 over the previous four sessions.
Broader stock indicators also fell. The Standard & Poor’s 500 index dropped 4.22 points, or 0.4%, to 1,218.59, and the Nasdaq composite index lost 6.17 points, or 0.3%, to 2,172.07.
Declining issues outnumbered advancers by nearly 5 to 3 on the New York Stock Exchange.
Treasury yields slipped as their prices rose for a second day, with the benchmark 10-year note falling to 4.56% from 4.62% on Monday.
Yields are still near their highest level of the year, however, helping lure investors to Tuesday’s auction of $18 billion in three-year notes, the first of three auctions this week.
The three-year notes were sold at a yield of 4.458%, slightly below the pre-auction estimate of 4.463%. Demand for the three-year notes was the highest since the government resumed sales of the security in 2003.
Five- and 10-year notes will be sold today and Thursday.
Oil prices moved higher, with a barrel of light crude settling at $59.71, up 24 cents, in New York trading. Although oil prices remain below $60 a barrel, energy prices remain near historical highs and will continue to pressure consumers.
In other market highlights:
* Toll dropped $5.50, or 14%, to $33.91. The company reduced its sales forecast for next year, citing regulatory delays in opening new communities, construction backlogs and an easing of demand in some markets. It now expects to sell as many as 10,200 homes, down from a previous projection of up to 10,600.
Toll’s forecast sent an index of 16 builders compiled by Standard & Poor’s tumbling 7.5%, its steepest decline since September 2001. The drop cut the group’s gain for the year in half.
D.R. Horton fell $3.15, or 9.3%, to $30.60 and KB Home dropped $3.71 to $63.74. Lennar slid $3.05 to $55.30.
* Suppliers of home-building materials also declined. Lumber company Weyerhaeuser fell $1.70 to $61.27. USG, the No. 1 maker of wallboard, retreated $1.10 to $57.63.
* Higher rates and a cooling housing market may reduce the amount of money spent at retailers and on consumer goods. Freddie Mac expects homeowners to take 44% less equity from their homes next year than the record $204 billion forecast for 2005.
Best Buy fell $1.61 to $46.80. Whirlpool, the appliance maker seeking to buy smaller rival Maytag, slid $2.52 to $78.45. Home Depot lost 93 cents to $40.57.
* Visteon tumbled $1.26, or 14%, to $7.72 for the worst performance in the S&P; 500. The auto parts company said it had a third-quarter loss of $200 million on production cuts by Ford, its top customer. Visteon said it expected a fourth-quarter gain of as much as $1.8 billion related to a bailout by Ford.
Ford fell 8 cents to $8.26 and General Motors dropped 89 cents to $25.86.
* Tire maker Cooper slid 65 cents to $13.76. The company reported a loss of $840,000 on lower sales, higher raw-material costs and increased interest expenses. Cooper had a profit a year earlier of $9.87 million.
* LSI Logic dropped 36 cents to $7.90. The maker of semiconductors used in DVD players and storage devices faces “seasonally softer” demand, a Lehman Bros. Holdings analyst wrote in a note.
* McDonald’s added 30 cents to $34. The world’s largest restaurant chain said October sales increased 3.4%, lifted by higher sales in Europe and a Monopoly-game promotion in the U.S.