Stocks fall amid soft housing data
Stocks stumbled Tuesday as investors grew wary when new data raised the possibility that the nation’s weak housing market would seep into the broader economy and crimp consumer spending.
A housing index released by Standard & Poor’s showed that prices of single-family U.S. homes fell in January compared with a year earlier, in their worst showing since January 2004.
Also, Lennar, one of the nation’s largest home builders, said its first-quarter profit plummeted 73% and warned that it probably wouldn’t meet its 2007 earnings guidance.
Wall Street has been nervous lately that a drop in housing values will further weaken sub-prime mortgage lenders, which make loans to people with poor credit, and make consumers feel less wealthy and rein in spending. Consumer spending makes up about two-thirds of U.S. economic activity.
The Conference Board said that its March consumer confidence index fell to 107.2, the lowest level since November and a decline that was larger than Wall Street expected. The index was at 112.5 a month earlier, which had been its highest level in 5 1/2 years.
Analysts noted, however, that lower confidence didn’t necessarily translate to a drop in spending, especially with the labor market as stable as it was. Furthermore, the Dow Jones industrial index rose every day last week and the recent pullback has erased only a small portion of that 370-point weekly gain -- the largest since March 2003.
“While the market remains on the cautious side, there was a nice little bounce since mid-March,” said Edward Yardeni, president of Yardeni Research Inc. “Investors are just looking over their shoulders, wondering if the problems in the housing market and sub-prime market are going to spill over.”
The Dow fell 71.78 points, or 0.6%, to 12,397.29. Tuesday’s sell-off put the blue-chip index back into negative territory for the year.
Broader stock indicators also fell but remain higher for 2007. The Standard & Poor’s 500 index lost 8.89 points, or 0.6%, to 1,428.61, and the Nasdaq composite index declined 18.20 points, or 0.7%, to 2,437.43.
The Russell 2000 index of smaller companies dropped 6.58 points, or 0.8%, to 802.36.
“The market is looking for some good news to sustain itself. Today didn’t give that kind of news, and we were slightly overbought,” said Richard E. Cripps, chief market strategist for Stifel Nicolaus, a broker based in St. Louis. “We’re looking at markets that appear like they’re more discriminating about risk.”
Bonds were little changed. Investors were weighing the decline in home prices against the specter of inflation, sparked by speeches by Fed officials Sandra Pianalto and Michael Moskow, who both touched on monetary-policy issues.
The yield on the benchmark 10-year Treasury note was flat at 4.60%.
The dollar was lower against the euro and yen. Gold futures slipped by $1.30 an ounce to $662.10.
Crude oil prices rose 2 cents to $62.93 a barrel on the New York Mercantile Exchange.
Gasoline prices have risen sharply in recent weeks, giving many Americans another reason to keep a tight budget.
As the cooling housing market damps demand for home building materials, many manufacturers have struggled.
The Federal Bank of Richmond reported that economic activity in the Richmond, Va., region registered a negative-10 in March -- the same reading as in February, but still indicating contraction.
Though the weakness in housing and manufacturing is weighing on stocks, some say it could eventually give the market a boost if investors believe that the Federal Reserve won’t raise interest rates to curb inflation.
“There’s enough softness in the economy that the Fed’s not going to raise rates,” Yardeni said. “It’s a delicate balancing act here -- investors don’t mind softness in the economy as long as it’s not a recession.”
Today, investors will be listening to testimony by Fed Chairman Ben S. Bernanke for clues about the economy’s direction, and reading the Commerce Department’s report on orders of durable goods for February.
Most companies aren’t releasing much financial data in the coming weeks, as the first quarter wraps up Friday and before the earnings rush begins in mid-April. But companies could issue profit warnings, to which Wall Street will pay close attention.
In other market highlights:
* Lennar fell 4 cents to $44.50 after reporting that ongoing softness in the housing market would keep eating into profit. Other home builder stocks tumbled on Lennar’s outlook and the S&P;’s home price data. D.R. Horton dropped 31 cents to $22.48. Toll Bros. slipped 45 cents to $28.40, and KB Home sank 68 cents to $45.31.
* Transportation stocks also fell. CSX fell $1.01 to $39.08, Burlington Northern Sante Fe lost $1.49 to $80.30 and Union Pacific dropped $1.69 to $100.94.
Declining issues outnumbered advancers by more than 2 to 1 on the New York Stock Exchange, where volume came to 2.58 billion shares, compared with 2.69 billion Monday.
