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Housing Data Shake U.S. Stocks

Mike Taylor

U.S. stocks opened weak, fell sharply, then stayed down Thursday as investors digested worse-than-expected data concerning the capsized housing market.

The Dow Jones Industrial Average was down 129 points to 11,502, while the S&P 500 dropped 14 points to 1268. The Nasdaq gave up 21 points to 2305.

The National Association of Realtors reported that existing-home sales declined 2.6% to 4.86 million units in June, falling short of economists' expectations for 4.95 million units. Median single-family home prices fell 6.1% year over year in June.

"We still think home sales have some way yet to fall, but they are not going to keep dropping at the June pace," wrote Ian Shepherdson, chief U.S. economist at High Frequency Economics, in an email. He predicted further price drops for U.S. homes.

"The market cannot heal until the housing market heals," said Michael Pento, senior market strategist for Delta Global Advisors. He said that rates of homeownership in the U.S. are well above historical norms, so there isn't demand for houses. Furthermore, home-to-price ratios are too high, meaning homes are overvalued in historical terms.

The financial sector suffered following the report, as concern mounted over the possibility of additional mortgage-related losses for the banks. Dow members Citigroup (C), AIG (AIG) and JPMorgan Chase (JPM) were all contributing to the index's decline. "Assets held by banks will continue to erode, so I'm not very ebullient on the banking sector," said Pento.

The Labor Department also released jobless claims for the week ended July 19. Initial claims were up 34,000 to 406,000 for the week, and the July 12 figure was revised to 372,000 from 366,000.

"We had the first-time jobless claims well over 400,000 for the first time since 2005," said Pento. "The economy is weak. We're not looking at any second-half rebound."

The downdraft in stocks came as traders sorted through another slew of corporate quarterly reports.

Following the close of Wednesday's trading, online merchant Amazon.com (AMZN) beat earnings estimates on both the top and bottom lines.

Elsewhere in technology, chipmaker Qualcomm (QCOM) matched analyst expectations despite a decline in third-quarter profit. Qualcomm also settled a patent dispute with cell-phone maker Nokia (NOK).

Meanwhile, homebuilder Ryland (RYL) posted a loss that was worse than its year-ago results, while Pulte Homes (PHM) narrowed its own loss.

Before the new day's trading got underway, investors heard quarterly results from another heap of companies. Dow Chemical (DOW) reported a 27% drop in profit on rising energy and materials costs.

Farm products maker Bunge (BG) and fertilizer seller Potash (POT), on the other hand, both recorded soaring profits.

In the pharmaceutical space, Elan (ELN) cut its second-quarter loss in half on improving sales of its multiple-sclerosis drug Tysabri. Eli Lilly (LLY) announced a 44% increase in second-quarter income, but reduced its full-year earnings outlook. Celgene (CELG) likewise saw profits soar on strong sales of its Revlimid blood cancer treatment.

Automaker Ford (F) posted a wider-than-expected loss of $8.7 billion on waning demand for its heavy vehicles and hefty impairment charges.

Consumer-products company Kimberly-Clark (KMB) saw second-quarter earnings decline 10% on increasing natural gas, oil and distribution costs.

Among financials, National City(NCC) said it swung to a $1.8 billion loss thanks to an increase in loan-loss reserves and $1.1 billion in writedowns.

Outside earnings, The Wall Street Journal reported that Kevin Johnson, head of Microsoft's (MSFT) Windows and online services segments, will leave the company for Juniper Networks (JNPR).

In pursuit of a merger, XM Satellite Radio (XMSR) and Sirius (SIRI) said they will pay a $19.7 million penalty to settle Federal Communications Commission rules violations, a move that may push the deal forward.

Moving over to commodities, crude oil was down 20 cents to $124.24 a barrel after falling nearly $7 over the past two days. Gold was losing $2.10 to $920.70.

Treasuries were edging higher. The 10-year note was up 14/32 in price to yield 4.07%, and the 30-year was adding 22/32, yielding 4.63%. The dollar was slightly lower against the euro and yen but strengthening vs. the pound.

Overseas, European exchanges were mostly trading downward. The FTSE in London and the DAX in Frankfurt were both weaker. In Asia, Japan's Nikkei gained, while Hong Kong's Hang Seng declined.