Stocks fall on housing data
The stock market tumbled Wednesday after a worse-than-expected home sales report stoked fears that the beleaguered housing market had further to fall.
Stocks opened lower after the release of data showing that pending home sales sank 12.2% in July to the lowest level in nearly six years. That was far worse than the 2.2% drop economists had expected, according to a Bloomberg News poll.
A government report later in the day painted a more sanguine economic picture, but stocks closed lower nonetheless.
The Dow Jones industrial average fell 143.39 points, or 1.1%, to 13,305.47. The Standard & Poor’s 500 index slumped 17.13 points, or 1.2%, to 1,472.29. The Nasdaq composite index slid 24.29 points, or 0.9%, to 2,605.95.
The Russell 2,000 index of smaller companies fell 10.23 points, or 1.3%, to 790.46.
Decliners outnumbered advancers by more than 3 to 1 on the New York Stock Exchange.
Bond yields tumbled to multi-month lows as investors again sought the safety of government debt. The yield on the 10-year Treasury note dropped to 4.46%, its lowest level since March 14, from 4.55% late Tuesday.
The report from the National Assn. of Realtors showed a sharp decline in the number of contracts to buy existing homes. The group’s seasonally adjusted index of signed purchase agreements plummeted 12.2% in July from June and was down 16.1% from a year earlier.
The reading portends a sharp drop in completed home sales in the next few months.
“Our members are telling us some sales contracts aren’t closing because mortgage commitments have been falling through at the last moment,” said Lawrence Yun, the group’s senior economist.
The Federal Reserve’s “beige book” report, which anecdotally describes regional economic conditions around the country, was more upbeat.
Though housing weakness has deepened, the recent turmoil in the financial markets has had only limited effect on the broad economy, according to the report.
That assessment was met with mixed emotions, however, because it raised questions about whether the Fed would cut interest rates at its meeting Sept. 18.
Wall Street’s downcast mood Wednesday came after the Dow rose in three of the preceding four sessions.
“It seems like every day you’ve got some news that sub-prime and some of the effects of the housing [slump] aren’t quite so bad and the next day you’ve got something that says it is worse than we thought in another area. I just think it’s a continuation of the choppiness,” said Kent Croft, chief investment officer at Croft Leominster Investment Management in Baltimore.
He said Wall Street could take months to sort out its concerns about issues such as bad sub-prime loans, which are made to borrowers with weak credit.
The home-sales report hurt builders’ stocks. KB Home fell $1.52, or 4.9%, to $29.25, and Toll Bros. declined 65 cents, or 3%, to $21.19.
Stocks of investment banks sold off on fears that credit market woes would eat into third-quarter profits. Bear Stearns skidded $5.18, or 4.5%, to $108.95. Lehman Bros. slumped $2.11, or 3.7%, to $54.35.
Given the Fed’s recent reassuring comments, many experts think the central bank will trim its benchmark interest rate to 5% from the current 5.25%. But if the broad economy remains solid, Wall Street’s hopes for a series of rate cuts in the months ahead may go unfulfilled.
With that in mind, investors will pay close attention to monthly employment statistics to be released Friday. A strong report could discourage the Fed from a prolonged series of rate cuts.
The dollar was mixed Wednesday against other major currencies, while gold prices edged lower.
Oil futures rose 65 cents to settle at $75.73 a barrel on the New York Mercantile Exchange.
In other market highlights:
* Apple fell $7.40, or 5.1%, to $136.76 after it slashed the price of its iPhone by $200.
* Costco Wholesale fell $2.61, or 4.2%, to $59 after reporting that its August same-store sales rose a weaker-than-expected 2%, with much of the increase attributed to international sales.
Most major retailers will be reporting their August sales today.
* ConocoPhillips slid $1.36, or 1.6%, to $82.12. An analyst cut his rating on the oil company after its recent bull run.
* Tempur-Pedic International gained $1.53, or 5.2%, to $31.03. A J.P. Morgan Securities analyst upgraded the mattress and pillow maker.
* SLM -- known as Sallie Mae -- fell 81 cents, or 1.6%, to $49.10 after details of a plan by lawmakers to cut subsidies to the student lending industry emerged.
* Cardica soared $2.64, or 49%, to $8.02. The medical device maker said two surgical teams had successfully used its automated system for coronary artery bypasses.
* Hawthorne-based OSI Systems plunged $5 to $20.56 after the maker of security and inspection systems forecast fiscal 2008 sales that were below Wall Street expectations.
* Overseas, key stock indexes tumbled 1.6% in Japan, 1.7% in Britain, 1.7% in Germany and 2.1% in France.
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The Associated Press was used in compiling this report.
