Stocks end narrowly mixed on housing news
A larger-than-expected drop in housing starts gave Wall Street a narrowly mixed performance Friday, but the Dow Jones industrials had their third straight record close after spending much of the session in a decline that lacked conviction. The major indexes had their best week since mid-November.
Investors remained somewhat cautious after the Commerce Department said construction of homes and apartments sank 14.3% in January, the biggest drop in nearly 10 years. But there was upbeat economic news as well that lent support to the market and kept the pullback to a minimum: Wholesale prices fell in January by the largest amount in three months amid retreating energy prices.
Technology stocks were weaker after Microsoft Chief Executive Steve Ballmer said late Thursday that Wall Street’s revenue forecasts for the Vista operating system were “overly aggressive.” The stock, trading just off its 52-week high, fell more than 2%.
Friday’s advance gave the Dow its fourth straight gain; the index has added 215.02 points since Tuesday. The market’s February rally has been driven by growing confidence that interest rates will hold steady as Federal Reserve Chairman Ben S. Bernanke battles inflation and tries to ease the economy into a “soft landing.”
“The Microsoft news and the housing data spooked the market,” said Jim Herrick, director of equity trading at Baird & Co. “But this is just a mild drop, not a dramatic sell-off.”
The Dow rose 2.56 points to 12,767.57. It marked the Dow’s 30th record close since the start of October and its third record close of the week.
Broader stock indicators fell. The Standard & Poor’s 500 index dropped 1.27 points to 1,455.54, and the Nasdaq composite fell 0.79 of a point to 2,496.31.
For the week, the Dow and the Nasdaq rose 1.5%, and the S&P; 500 added 1.2%. Stocks began their ascent Tuesday after word that two companies were interested in acquiring aluminum producer Alcoa.
Wall Street extended its gains Wednesday after Bernanke told a Senate panel that the economy should grow modestly this year and that he expected inflation to continue to ease. The testimony indicated to some investors that a reduction in interest rates might be possible this year -- at the very least, it made it seem more likely that the central bank would keep rates stable.
Bond yields slipped, with the yield on the benchmark 10-year Treasury note falling to 4.69% from 4.71% on Thursday. The dollar was mixed against other major currencies. Gold prices rose.
The markets will be closed Monday for Presidents Day.
The Labor Department reported that its measure of wholesale inflation, the producer price index, declined 0.6% in January to match Wall Street expectations. Excluding food and energy, the core index was also in line with projections with a 0.2% increase.
However, the markets were startled by a report from the Commerce Department that construction of new homes and apartments sank 14.3% in January.
“Weakness in housing starts will ultimately be good for housing because there is too much inventory out there. But this correction doesn’t make it painless,” said Stuart Schweitzer, global markets strategist for JPMorgan Private Bank.
He contends that although the slowdown in housing could lead to a rise in unemployment in the construction sector, the overall economy remains solid. A cooling housing sector and an attendant uptick in unemployment could ease concerns about inflation and help the Fed justify an eventual reduction in short-term interest rates.
In other market highlights:
* Home builders’ shares slumped on the news of weak housing starts. Lennar fell 24 cents to $52.96 and KB Home slid 53 cents to $54.22.
* Microsoft fell 72 cents to $28.74 after Ballmer told Wall Street analysts that they needed to lower sales projections for Vista. The consumer version of Vista was released in late January. Businesses received their version in November.
* AMR, the parent of American Airlines, rose 92 cents to $38.97 on speculation that a buyout team led by Goldman Sachs and British Airways might make a bid for the company.
