Decline in Home Sales Hurts Stocks
Stocks ended broadly lower Wednesday as fresh signs of a housing slump triggered concerns that the economy may be slowing too fast, which could erode corporate profits.
Wall Street’s decline weighed on foreign markets on fears that U.S. economic weakness could have global consequences. Brazil’s main stock index slid 3.2%. An index of European blue-chip shares declined 0.5%.
The U.S. market was rattled by a report from the National Assn. of Realtors showing that sales of previously owned homes dropped in July to a pace of 6.33 million units, the lowest since January 2004.
Los Angeles-based home builder KB Home and Realogy, the country’s biggest residential real estate broker, led declines in the Standard & Poor’s 500 index. Lowe’s, the No. 2 home improvement chain, pushed retailers lower as prospects for consumer spending worsened.
“Housing is a relatively important number and clearly an area that has been a driver for the economy,” said John Caldwell, a strategist for McDonald Investments in Cleveland.
The Dow Jones industrial average fell 41.94 points, or 0.4%, to 11,297.90. The S&P; 500 shed 5.83 points, or 0.5%, to 1,292.99, and the Nasdaq composite dropped 15.36 points, or 0.7%, to 2,134.66.
Losers topped winners by 2 to 1 on the New York Stock Exchange and on Nasdaq, although trading was thin.
Smaller stocks were hit hard: The Russell 2,000 small-stock index sank 1.3%, its biggest one-day decline since Aug. 1.
The housing data came a day after a Federal Reserve official hinted that higher interest rates might still be needed to tame inflation, which could curtail consumer spending. The Fed left its benchmark short-term rate unchanged this month after 17 straight increases.
“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, investment strategist at Morgan Stanley’s global wealth management group.
However, he pointed out, stock trading activity is “in the summer doldrums and just the slightest puff of wind can move the market apparently quite a ways.”
Next week, reports on manufacturing and job growth may provide more evidence on where U.S. growth is headed.
“There’s a sense that a weak economy is no longer just a signal for a Fed pause but is in fact a precursor for weaker stock prices,” said Michael Panzner, a trader with Collins Stewart in New York.
Iran’s nuclear program added to investor concern. The country’s response to an incentive plan aimed at persuading it to stop enriching uranium “falls short” of the conditions set by the U.N. Security Council, a State Department spokesman said.
But oil prices declined after U.S. government data showed rising supplies of gasoline as refiners increased output. Light sweet crude for October delivery fell $1.34 to $71.76 a barrel in New York trading.
The bond market held steady: The yield on the 10-year U.S. Treasury note was unchanged at 4.81%, a four-month low.
Among the day’s market highlights:
* Pulte Homes, the biggest U.S. home builder by market value, retreated $1.02 to $28.09. Lennar fell 73 cents to $44.33.
KB Home slumped $2.66, or 6.2%, to $40.53. In addition to the challenges facing all builders, KB Home said it was reviewing some stock options awarded to Chief Executive Bruce Karatz.
Realogy, owner of the Century 21 and Coldwell Banker real estate brokerage firms, fell $1.07 to $20.23.
* Retailers had the third-biggest loss among two dozen major industry groups in the S&P; 500, falling 1.3% on average. Consumer spending has helped sustain the U.S. economy’s expansion, and a decline in the housing market may prompt a reduction in expenditures.
Lowe’s lost 81 cents to $27.11, Wal-Mart Stores slipped 31 cents to $43.76 and Target declined $1.15 to $47.67.
* On the plus side, Wall Street shrugged off National Semiconductor’s warning that fiscal first-quarter revenue would come in lower than expected because of sluggish shipments of wireless handsets. The Santa Clara, Calif.-based company also said revenue was hurt because of fewer overall shipments.
However, 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.
* Weyerhaeuser, the world’s largest lumber company, gained $1.32 to $61.35 after agreeing to combine its fine-paper business with Domtar in a $3.3-billion deal. Weyerhaeuser shareholders will get 55% ownership in the company. Domtar slipped 16 cents to $6.71.
* Internet Security Systems jumped $1.62 to $27.62 after IBM agreed to buy the company for about $1.3 billion in cash, or $28 a share. IBM eased 28 cents to $78.67.
