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Stocks tumble after sales of existing homes fall
2008-07-24
NEW YORK - Wall Street abruptly ended an earnings-driven rally and closed sharply lower Thursday after a steeper-than-expected decline in existing home sales and worries about the financial sector chilled the market's recent optimism. The major indexes fell about 2 percent, including the Dow Jones industrial average, which lost more than 280 points. The National Association of Realtors said sales resumed their decline in June after a slight rebound in May. Existing home sales declined by 2.6 percent in June, well beyond the 1 percent drop economists had forecast. Investors punished shares of homebuilders and financial companies Thursday because both sectors have struggled with the declining housing market. Alan Lancz, director at investment research group LanczGlobal, said investors are concluding that while financials had been oversold in recent weeks and were due for a rebound, problems remain with tight credit and souring mortgage debt. "You have the rally and you almost get the hangover now where you say 'You know, we're not out of the woods yet,'" he said. The Dow fell 283.10, or 2.43 percent, to 11,349.28. It was the biggest decline for the Dow since June 26. The pullback erased the nearly 170 points added in the two prior sessions. Last week, the Dow gained nearly 400 points. While some declines after the latest rally wouldn't have come as a surprise, the drop Thursday revealed fresh unease about the economy. Broader stock indicators also declined. The Standard & Poor's 500 index fell 29.65, or 2.31 percent, to 1,252.54. A jump in Amazon.com Inc. shares helped contain some of the decline in the technology-heavy Nasdaq composite index, which fell 45.77, or 1.97 percent, to 2,280.11. Stocks had risen in the prior two sessions as the price of oil declined. Oil is now down more than $20 after just weeks ago hitting a record above $147 a barrel. A barrel of light, sweet crude rose $1.05 Thursday to settle at $125.49 on the New York Mercantile Exchange. Bond prices jumped Thursday as some investors looked for the safety of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 4.00 percent from 4.12 percent from late Wednesday. The dollar was mixed against other major currencies, while gold prices rose. Financial stocks declined again Thursday after rising sharply in the past week from their recent lows. Washington Mutual Inc. fell 62 cents, or 13 percent, to $4.03 after dropping 20 percent Wednesday as concerns persisted about the company's mortgage portfolio. The nation's largest thrift this week posted a $3 billion loss due to increases in its loss reserves to cover souring loans in its mortgage holdings. Other financials lost ground. Citigroup Inc. fell $2.06, or 9.8 percent, to $19.06, while Merrill Lynch & Co. fell $4.77, or 14 percent, to $29.04. Wachovia Corp. declined $1.96, or 11 percent, to $15.69. Fannie Mae and Freddie Mac fell sharply after rallying earlier in the week on legislation speeding through Congress that would grant the Treasury Department power to extend the government-sponsored mortgage companies an unlimited line of credit and to buy an unspecified amount of their stock, if necessary. The companies together back or own $5 trillion in mortgages -- nearly half the nation's total. Fannie Mae fell $2.98, or 20 percent, to $12.02, while Freddie Mac fell $1.99, or 18 percent, to $8.81. Homebuilder Lennar Corp. fell $2.47, or 18 percent, to $11.07 and KB Home declined $3.04, or 15 percent, to $16.70. Lancz said the run-up in previous sessions may have led some investors to become too optimistic about the overall market's prospects for a speedy recovery. Stocks are still down nearly 20 percent from the highs seen in October. "You're going to have these starts and stops but it's going to be a really long-term process," he said. Adding to investors' pessimism, the Labor Department reported Thursday that the number of people filing first-time claims for unemployment benefits bolted past 400,000 last week as companies trimmed their work forces to cope with a slowing economy. Investors also absorbed a mix of earnings reports from names like Ford Motor Co., which reported a big loss, and Dow Chemical Co., which said higher costs for raw materials sent earnings down sharply. But drug makers Bristol-Myers Squibb Co. and Eli Lilly & Co. both reported higher earnings as the weak dollar boosted foreign sales, and Amazon.com Inc. turned in a solid report that beat expectations. Analysts have said that so far, second-quarter earnings reports have been better than many investors expected. That had lifted the market's mood in recent sessions. Ford said it lost $8.67 billion in the second quarter, largely because of a reduction in the value of assets. The company also said it will bring six European small car models to North America by the end of 2012 as it adjusts production because of high gasoline prices. The stock fell 92 cents, or 15 percent, to $5.11. Dow Chemical fell $1.13, or 3.3 percent, to $33.11 after reporting sharply higher costs for energy and raw materials contributed to a 27 percent decline in profit. Bristol-Myers beat expectations with an 8 percent rise in quarterly profit, while Eli Lilly reported a 44 percent jump in earnings. Bristol-Myers rose 23 cents to $22.12 and Eli Lilly advanced 38 cents to $48. Amazon.com jumped $8.18, or 12 percent, to $78.72 after reporting late Wednesday that second-quarter earnings more than doubled to easily top analysts' expectations. The Internet retailer also raised its full-year revenue projections. Stephen Goddard, co-portfolio manager of the AFBA 5Star Balanced Fund, said the decline in housing numbers alongside some better-than-expected earnings reports shouldn't be surprising because mixed reports are common during economic downturns. "All the numbers don't turn at the same time," he said of economic readings. "It's usually one by one by one. You start seeing incremental improvement." Declining issues outnumbered advancers by about 4 to 1 on the New York Stock Exchange, where consolidated volume came to 5.98 billion shares, compared with 6.56 billion shares traded Wednesday. The Russell 2000 index of smaller companies fell 16.80, or 2.34 percent, to 702.39. Overseas, Japan's Nikkei stock average rose 2.18 percent. Britain's FTSE 100 fell 1.61 percent, Germany's DAX index shed 1.46 percent, and France's CAC-40 fell 1.38 percent. ___ On the Net: New York Stock Exchange: http://www.nyse.com Nasdaq Stock Market: http://www.nasdaq.com
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