Stocks retreat as weak durable goods orders, housing sales add to concerns about economy

By Stephen Bernard, AP
Wednesday, August 25, 2010

More bad news on home sales sends stocks lower

NEW YORK — Another dose of gloomy news about the economy drove stocks lower Wednesday.

The Dow Jones industrial average fell about 10 points Wednesday afternoon following news that sales of new homes fell last month to the lowest level on record. It was the latest indication that home sales are stagnating after the expiration of a homebuyer tax credit this spring.

A separate report from the Commerce Department showed that durable goods orders grew only slightly last month, falling shy of expectations and disappointing investors who had been hoping that the U.S. manufacturing sector would continue to pick up.

Market indicators came off their lows for the day as some investors saw value in beaten-down shares.

“There are some buyers today,” said Albert Meyer, portfolio manager of the Mirzam Capital Appreciation Fund. Meyer said some investors might see the market as oversold after its recent losing streak.

The Dow briefly fell below 10,000 for the second straight day Wednesday before climbing back above that psychological benchmark. It had been down as much as 102 points during the day but recouped much of its losses.

Sandy Mehta, principal and chief investment officer of Value Investment Principals, said stocks are in a volatile range right now, which has been exacerbated by the seasonal summer slowdown in trading.

“We rally, we sell off. We rally, we sell off,” Mehta said. “It’s just the nature of the market right now.”

The newest signs that the economic recovery is sputtering led many investors to move money into the relative safety of Treasurys, sending their yields lower. The yield on the 10-year Treasury note touched levels not reached since January 2009, when the stock market was heading toward its lowest level in 12 years, and the yield on the two-year remained near a record low.

Stocks have been hit hard in recent days because of concerns about whether the economy will fall back into recession or at least be stuck in a prolonged period of very slow growth. The Dow is heading into its fifth straight day of declines.

New home sales fell 12.4 percent in July to an annual rate of 276,600, the Commerce Department reported. That was the slowest pace on records dating back to 1963 and worse than the pace forecast by economists polled by Thomson Reuters. A day earlier, the National Association of Realtors said sales of existing homes, a far greater proportion of the housing market, fell to a 15-year low in July.

The Dow Jones industrial average fell 9.99, or 0.1 percent, to 10,030.46 in afternoon trading.

Broader market barometers were mixed. The Standard & Poor’s 500 index fell 1.74, or 0.2 percent, to 1,050.13, while the Nasdaq composite index rose 1.81, or 0.1 percent, to 2,125.57.

About three stocks fell for every two that rose on the New York Stock Exchange, where volume came to 591.7 million shares.

The fear among investors is that if the economy continues to worsen, corporate earnings will start to weaken, just as economic indicators have.

“The worry is, if the economy looks worse, maybe companies start ratcheting down” their earnings forecasts, said Russell Croft, portfolio manager at Croft Leominster Investment Management. “It’s still a very uncertain time.”

The yield on the 10-year Treasury note fell as low as 2.42 percent during morning trading before climbing back to 2.50 percent. Its yield is helps set interest rates on mortgages and other consumer loans.

Despite the ultra-low borrowing rates, home sales have been weak since a home buyer tax credit expired at the end of April. High unemployment has kept people from buying homes, and banks still reeling from the crisis in the mortgage-backed securities market have been cautious in making new loans.

Overseas, Japanese shares fell again after the yen hit a new 15-year high against the dollar and a nine-year high against the euro. The high yen hurts profitability at major Japanese exporters. Japan’s Nikkei stock average fell 1.7 percent. European markets were also lower.

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