Stocks decline on soft housing market
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 Tuesday by Standard & Poor’s showed that prices of single-family U.S. homes fell in January compared to a year ago, in their worst showing since January 2004. Also, Lennar Corp., one of the nation’s largest homebuilders, said its first-quarter profit plummeted 73 percent and warned that it probably won’t meet its 2007 earnings guidance.
Wall Street has been nervous lately that a drop in housing values will further weaken subprime mortgage lenders, who 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 Tuesday 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 five-and-a-half years.
Analysts noted, however, that lower confidence doesn’t necessarily translate to a drop in spending, especially with the labor market as stable as it is. Furthermore, the Dow Jones industrials 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. Investors are just looking over their shoulders, wondering if the problems in the housing market and subprime market are going to spill over,” said Edward Yardeni, president of Yardeni Research Inc.
According to preliminary calculations, the Dow fell 71.78, or 0.58 percent, to 12,397.29. Tuesday’s selloff 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, or 0.62 percent, to 1,428.61, and the Nasdaq composite index declined 18.20, or 0.74 percent, to 2,437.43.
“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 Tuesday. 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 at 4.61 percent, the same as late Monday.
The dollar was lower against the euro and yen. Gold prices also slid.
Declining issues outnumbered advancers by more than 2 to 1 on the New York Stock Exchange, where volume came to 1.38 billion shares.
The Russell 2000 index of smaller companies was down 6.58, or 0.81 percent, at 802.36.
Overseas, Japan’s Nikkei stock average fell 0.90 percent. Britain’s FTSE 100 edged up 0.01 percent, Germany’s DAX index advanced 0.43 percent, and France’s CAC-40 gained 0.19 percent.