Stocks fall as slowdown worries persist
Stocks fell for the second straight day Thursday after warnings from several homebuilders 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 keep interest rates stable — or resume its rate hikes to keep inflation in check — when it meets later this month.
Investors, already armed with recent economic data pointing to a housing slowdown, were forced to digest sour anecdotal evidence as well. Beazer Homes USA Inc., Hovnanian Enterprises Inc. and KB Home warned that the home-building sector is facing difficulties including cancellations and spikes in inventories.
The bad news only worsened Thursday afternoon when news services quoted Yellen as saying the Fed should maintain its focus on containing inflation. She said the outlook regarding inflation remains “highly uncertain.”
Yellen also said data suggest both the housing market and the overall economy are cooling; the question for investors is how quickly is that 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 the mounting news about a housing slowdown has spooked investors because of the major role the robust housing market played in driving economic growth in recent years.
The Dow Jones industrial average fell 74.76, or 0.66 percent, to 11,331.44.
Broader stock indicators also declined. The Nasdaq fell 12.55, or 0.58 percent, to 2,155.29 after posting its largest single-day point drop in more than a month on Wednesday, and the Standard & Poor’s 500 index was off 6.24, or 0.48 percent, at 1,294.02.
Bonds rose, with the yield on the benchmark 10-year Treasury note falling to 4.79 percent from 4.80 percent late Wednesday. The yield hit a five-month low of 4.73 percent Friday. The dollar was mixed compared with most major currencies, while gold fell.
Wall Street is wrestling with the question of how the Federal Reserve will act as it seeks to hold back inflation. Many investors, who would ordinarily cheer falling oil prices, remain focused on whether the Fed will resume its course of rate hikes when it meets Sept. 20 and whether such a move would put the brakes on an already slowing economy and perhaps dent corporate profits.
Declining issues outnumbered advancers by roughly 2 to 1 on the New York Stock Exchange, where volume came to 1.48 billion shares, compared with 1.45 billion traded Wednesday.
The Russell 2000 index of smaller companies was down 5.57, or 0.78 percent, at 706.47.
Overseas, Japan’s Nikkei stock average closed down 1.67 percent amid concerns about U.S. interest rates rising. Britain’s FTSE 100 closed down 1.20 percent, Germany’s DAX index was off 0.68 percent, and France’s CAC-40 was down 1.08 percent.