Stocks give up early gains after homebuilders signal lack of confidence in housing market

By Stephen Bernard, AP
Monday, July 19, 2010

Stocks waver after homebuilder confidence drops

NEW YORK — Stocks rebounded Monday as investors bought selectively following the market’s big slide last week.

The Dow Jones industrial average rose more than 80 points after tumbling 261 on Friday. Broader indexes also gained.

Trading was erratic after another bad report on housing sent stocks briefly lower. But as the day wore on, stocks picked up some momentum. However, many investors who are waiting for a flood of earnings reports later this week stayed out of the market. That left volume low and helped exaggerate some price moves.

The National Association of Home Builders said its confidence index sank to 14, its lowest level since March 2009. A reading below 50 indicates homebuilders have a negative view of the housing market

The report was the latest in a series of disappointing housing numbers that began appearing after the government’s home buyer tax credit expired at the end of April.

“I don’t know that it surprised anybody,” Mike Shea, managing partner in equity sales and trading at Direct Access Partners, said of the report. “At the end of the day, it doesn’t drive the market down, but it keeps the market from rising.”

Homebuilders’ stocks fell on the news. D.R. Horton Inc., Toll Bros. Inc. and Lennar Corp. all fell.

Further readings on the housing market are due out later in the week. They too are expected to show the market is weak and that there are few signs that business will pick up anytime soon. Economists predict reports on housing starts, building permits and sales of previously occupied homes will show declines for June.

The building permits data is likely to be particularly discouraging because it is used as a gauge for future construction. Investors have become more concerned with forecasts for the future rather than past reports, so anything that indicates weakness in the coming months and quarters is being met with disappointment.

Michael Sheldon, chief market strategist at RDM Financial Group, said Monday’s modest gains were more about stocks stabilizing after Friday’s sharp declines that any one particular driver such as earnings reports or economic indicators.

But the fact that the market recovered following the disappointing homebuilders news shows investors do have an appetitite for stocks, especially since the recent losses left them cheaper, Sheldon said.

Investors are still waiting to see the hundreds of second-quarter earnings reports that companies will be releasing during the next few weeks. Analysts say stock prices already reflect strong earnings numbers. Trading is more likely to turn on companies’ forecasts for the future than how they did during the April-June period.

That happened Friday when investors sold off shares following earnings reports from banking giants Bank of America Corp. and Citigroup Inc. Investors were worried about how banks might generate revenue if investment banking and trading is curtailed by recently passed financial regulation reforms.

In afternoon trading, the Dow Jones industrial average rose 82.11, or 0.8 percent, to 10,179.48. The Standard & Poor’s 500 index rose 9.02, or 0.9 percent, to 1,073.90, while the Nasdaq composite index rose 18.71, or 0.9 percent, to 2,197.76.

Gainers outnumbered losers by 2 to 1 on the New York Stock Exchange.

Volume was light, which can add to volatility in the market. Trading volume came to a very light 643 million shares.

D.R. Horton fell 5 cents to $10.05. Toll Bros. dropped 17 cents to $16.26, while Lennar fell 15 cents to $13.86.

Earnings again presented a mixed picture of potential economic growth.

Investors were encouraged by Halliburton Co.’s results and prospects for land-based business growth. The energy services company’s stock jumped after it said a bad on offshore drilling would only cut earnings by 5 cents to 8 cents per share per quarter. Halliburton rose $1.88, or 6.8 percent, to $29.39.

At the same time, toy maker Hasbro Inc.’s again showed that shoppers are staying out of stores while unemployment remains high. Hasbro’s earnings rose, but toy sales dropped adding to worries about the uncertain labor market and its effect on consumer spending. Hasbro fell 17 cents to $39.33.

Bond prices fell as the advance in stocks grew larger. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 2.97 percent from 2.93 percent late Friday.

European markets all dipped. Moody’s Investors Service cut its rating on Ireland’s debt. Ratings agencies have regularly slashed ratings on many European countries’ debt in recent months as mounting deficits dim the hopes for strong growth.

Britain’s FTSE 100 fell 0.2 percent, while Germany’s DAX dipped 0.5 percent and France’s CAC-40 fell 0.4 percent.

Japan’s Nikkei stock average fell 2.9 percent.

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