Stocks Fall on Economic Fears
Stocks fell for the second straight day Thursday after warnings from several home builders raised investors’ concerns about an economic slowdown and comments about inflation from San Francisco Federal Reserve President Janet Yellen offered little comfort.
Wall Street has been trying to anticipate whether the Fed will resume its rate hikes to keep inflation in check when it meets this month.
Investors, already armed with recent economic data pointing to a housing slowdown, have been forced to digest sour anecdotal evidence this week, with Beazer Homes USA, Hovnanian Enterprises and KB Home warning that the home-building sector is facing difficulties such as cancellations and bigger inventories.
The bad news only worsened Thursday afternoon when Yellen was quoted in media reports as saying “the inflation outlook remains highly uncertain.”
Yellen also said data suggested that both the housing market and the overall economy were cooling; the question for investors is how quickly that is occurring.
“It seems to me that the market is trading lower on the fears that the economy is perhaps having a hard landing versus a soft landing,” said Jim Herrick, head of equity trading at Robert W. Baird & Co. He contends that the mounting evidence of a housing slowdown has spooked investors because of the major role the housing market has played in driving economic growth in recent years.
The Dow Jones industrial average fell 74.76 points, or 0.7%, to 11,331.44.
The Nasdaq fell 12.55 points, or 0.6%, to 2,155.29, and the Standard & Poor’s 500 index was off 6.24 points, or 0.5%, at 1,294.02.
Bond yields inched lower, with the benchmark 10-year Treasury note falling to 4.79% from 4.80% on Wednesday.
Oil prices fell after data showed that rising refining capacity was helping add to U.S. gasoline and distillate inventories. Crude prices, which had recently been above $70 a barrel, had already fallen on an easing of tensions over Iran’s nuclear ambitions, a lighter-than-expected hurricane season and news that a Gulf of Mexico platform’s output is higher than before it was hit by Hurricane Katrina.
Crude futures settled down 18 cents at $67.32 a barrel.
The decline in the housing market has been the most glaring sign that the economy has been slowing. One of Wall Street’s greatest concerns is that home builders and companies dependent on home sales are being hurt by the cooling market, so this week’s announcements prompted some investors to pull money out of the market.
Herrick expects Wall Street to remain “jittery and data-focused,” and likely to react to concerns about the housing market, especially until it gets a clearer view of corporate earnings for the third quarter.
In other market highlights:
* Beazer declined $1.04, or 2.7%, to $37.33, after lowering its full-year profit forecast Thursday, citing falling sales and contract cancellations.
But shares of most other home builders were up despite continuing signs of a housing slowdown. After the close of trading Wednesday, KB Home cut its 2006 earnings. On Thursday, it added 1 cent to $40.40. Hovnanian said Wednesday that its fiscal third-quarter profit fell 36% as costs rose and orders slowed, though its profit topped forecasts. It rose $1.62 to $27.09.
* Flow International fell $1.40, or 10.3%, to $12.20 after the maker of high-pressure water-jet products said it would delay reporting fiscal first-quarter results while it examined possible problems with how it accounted for revenue.
