Dow Plunges More Than 310 Points

Disappointing Home Sales Figures Contribute To Investors' Unease

(CBS/AP)  Wall Street suffered one of its worst losses of 2007, leading a global stock market plunge on Thursday as investors succumbed to months of worry about the mortgage and corporate lending markets. The Dow Jones industrials closed down more than 310 points after earlier skidding nearly 450.

Investors who for months had been able to largely shrug off discomfort about subprime mortgage problems and a more difficult environment for corporate borrowing finally decided it was time to sell after the Commerce Department issued another disappointing home sales report.

New home sales for June were worse than expected, down 6.6 percent from May, reports CBS News correspondent Kelly Wallace.

Feeding the plunge were concerns that higher corporate borrowing costs will curb the rapid pace of takeovers that had driven stocks higher this year. Investors also feared the sluggish environment for home sales and continued defaults in subprime loans would spur debt defaults and weigh on corporate earnings.

Also affecting the market, analysts say, is a sign the era of easy credit is over. Lenders are tightening their standards and that's holding up big corporate deals like Chrysler's pending sale—and making home mortgages more difficult and expensive to get, reports Wallace.

"These aren't all brand new worries, but they all accentuated today by some clear evidence that some of our fears are coming true," Art Hogan, Jeffries and Co.'s chief market analyst told Wallace.

"We expected things to be bad, but not as bad as they came in."

While stocks plummeted, investors poured money into the safe haven of the bond market. The soaring price of Treasurys pulled yields lower, and the rate on the 10-year note plunged to 4.79 percent from late Wednesday's 4.90 percent.

"Worries that have been out there for the past couple of years are coming to a head right now," said investment strategist Edward Yardeni, president of Yardeni Research Inc. "It's show time."

Thursday's trading was the latest and most extreme in a series of frenetic sessions over the past month — many also accompanied by triple-digit swings in the Dow — as investors sold on worries about the subprime fallout or bought on optimism that there wouldn't be any widespread problems caused by mortgage failures. Many analysts have described the back-and-forth trading as overwrought and based more on gut emotion than careful consideration of market and economic fundamentals.

That was their feeling again Thursday.

"The rally in bonds at this point looks a little bit overdone," said Tom Higgins, chief economist at Payden & Rygel Investment Management in Los Angeles. "If you're going to park money temporarily, then cash I think is the way to be. But I think that we're going to form a bottom. I think people are going to be legging it back into the market."

The Dow plunged 311.50 or 2.26 percent, to 13,473.57 after falling 449.77 in earlier trading. The plunge was its worst since the 416.02 it lost on Feb. 27, when a drop in the Shanghai stock market rattled world exchanges.

Broader market indicators also slid. The Nasdaq composite index tumbled 48.83, or 1.84 percent, to 2,599.34, while the Standard & Poor's 500 skidded 35.43, or 2.33 percent, to 1,482.66.

The declines triggered a global sell-off in stocks, causing minor losses in Europe to accelerate rapidly along with the Dow's drop. In Europe, Britain's FTSE 100 closed down 3.15 percent, Germany's DAX index dropped 2.39 percent, and France's CAC-40 fell 2.78 percent.

Markets were closed in Asia before the rout got under way. Japan's Nikkei stock average closed up 0.88 percent and the Shanghai stock market composite added 0.52 percent to an all-time high.

Wall Street also found more immediate reasons to sell during the session — primarily the home sales figures from the Commerce Department, which further eroded confidence in the housing industry's ability to rebound.

The department reported that sales of new homes fell 6.6 percent last month to a seasonally adjusted annual rate of 834,000 units, more than triple what had been expected and the largest percentage drop since sales fell by 12.7 percent in January.

This boosted anxiety after quarterly results from home builders including Pulte Homes Inc. and D.R. Horton Inc. were squeezed by a sluggish environment from home sales and continued defaults in subprime loans.

"Wall Street continues to walk a wall of worry," said Ryan Larson, a senior equity trader at Voyageur Asset Management. "The housing market continues to be a story, and nobody knows when it will rebound. But, the real concerns are about credit and oil pushing higher."

Also stunting stocks was the Commerce Department's disappointing durable goods report. Though sales of big-ticket items increased by 1.4 percent last month to a seasonally adjusted $217.07 billion, durable goods, excluding transportation equipment, had an unexpected drop.

The Labor Department reported that jobless claims fell by 2,000 to 301,000 in the week ended July 21, slightly better than analysts' expectations.

Investors also reacted negatively as oil prices climbed to almost $77 per barrel during the session, stoking the market's worries about inflation. However, crude pared gains in the afternoon when a barrel of light sweet crude fell $1.23 to $74.95.

It all led to a frantic day for stock traders.

"It has been pretty volatile as of late, but now fears about a credit crunch are spreading more than they have in the past — and that's causing this drop,' said Matt Kelmon, portfolio manager of the Kelmoore Strategy Funds. "That's hurting the financials, and now energy companies are joining the party because oil is so high. They make up a large part of the S&P 500."

Wall Street, now at the peak of second-quarter earnings season, has been extremely volatile lately — a signature of typically slower trading that has been heightened by record runs in major market indexes. On Thursday, declining issues beat advancers by a 14 to 1 basis on the New York Stock Exchange, where volume came to a record 2.78 billion shares.

Both NYSE Group Inc. and Nasdaq Stock Market Inc. reported that their electronic trading systems were functioning normally, and no problems had been reported.

Ford Motor Co. rose 12 cents to $8.09 after it reported cost-cutting and a turnaround in its core automotive operations pushed its second-quarter to a profit. The company had posted seven quarters of losses as it grappled with sluggish sales and a major overhaul of its operations.

The Nasdaq's losses weren't as steep as other major indexes during the session due to strength from Apple Inc., which surged $8.74, or 6.4 percent, to $146.00. The iPod and iPhone maker's earnings easily surpassed Wall Street projections late Wednesday due to strong sales from its computer offerings.

Home builders sank after several disappointing reports. D.R. Horton fell 32 cents to $17.16 after it posted a fiscal third-quarter loss on charges to write down the value of unsold inventory and deposits on land.

Pulte fell 63 cents, or 3.1 percent, to $20.04 after it posted a second-quarter loss amid the struggling housing market.

[down-ndirty]

Social Security is a pay-as-you-go program where today's retirees extort money from current workers and the current workers are supposed to do the same to the next generation.
Posted by random_radar at 03:02 PM : Jul 26, 2007

EXTORT? LOL!!! I faithfully 'invested' in the system (not that I WANTED to) and expect a ROE on my money. Had I been allowed to control where my money was invested, my so-called SS income would be more than double what it is now.

Yes, I'm drawing SS and still working. Why shouldn't I? I also continue to contribute to SS to the tune of over 5500/year; over 7000/year if you include medicare tax. So an amount equal to a third of my SS income is going back into the system.

Will I work until I die? Probably. Especially considering that I am retired military and Reagan screwed the military retiree by allowing ex-wives to have a large portion of their pay. What would have been left wouldn't even buy groceries and gas and so I just walked away when my time was up.

I've been working 50 years, almost equally split between military and civilian. As a civilian I've had the good sense to 'put away' enough to supplement my SS. I hope the baby-boomers have that sense.

Based on inflation since 1958, what cost $100 in '58 now costs over $700 and will cost about $5000 or more 50 years from now. Young people should think about that.

[iceman_1960]

"Disappointing Home Sales Figures Contribute To Investors' Unease..."

It must be tough to get anyone to buy a "Disappointing Home" even in the best of times.

[iceman_1960]

I lost $10k today.

This must be Bush's fault.

It has to be.

[tnt1954]

as raygun quipped after the
'fall' of 1987, just a little profit-taking
today. then checked the astrology charts.

[tnt1954]

homes for sale at latigo beach, ca. 20 million
dollars, no down payment, each house has
a chemical toilet and hot plate, not wired
for microwave ovens. we feel electricity is
of the devil. pepperdine university nearby.
make love by candlelight. sometimes odd things
happen like too much happiness for clams
at too high a tide. then you have clambake.
that's a lotta clams for a roof. thatched even.
we take mastercard, visa, american express,
or will accept chinese checkers and checkmate.
false advertising is illegal you know.
eurythmics-would i lie to you? masters of
deceit? of course not. are we the real
owners of the house? maybe we just are
squatters. or people taking care of the
house for stars who are 'out of town'. trust
us.

[shanev137]

http://money.cnn.com/2007/07/09/real_estate/resets_are_coming/index.htm

[shanev137]

Jonesforch....you're right, you are the exception, not the rule.

Why do you think tons of homes are for sale and there are no buyers, and why do you think all the major homebuilder have been posting losses for the last 2 years?

[jonesforch]

shanev137

The housing market....what a joke. All it will be from here on out is the rich buying houses from the rich. The median income can not afford the median house, plus only people with 20% down and stellar credit can apply

I do not have stellar credit or 20% down and I still bought...guess I'm one of the few that cooks at home in stead of eating out all the time. Save 2 house payments a year and really eat much healthier

[noaanhc]

The rich get richer

Well for today at least
they got a little poorer.

[radiob-2009]

Dow stumble, nah this is a typical summer reaction, let it fall about 10% from its high and then buy.

[heresmy2cent]

"Disappointing Home Sales Figures Contribute To Investors' Unease..."

Why does the media always come up with some "lame reason of the day" as to why the market changes?

The decline in home sales is not exactly anything new to Wall Street or to anyone else.

[iceman_1960]

As Warren Buffett said on October 19, 1987 ("Black Monday") "It was paper money yesterday. It's paper money today."

Properly diversified long term investors don't have a cow just because the bull market stumbles now and then.

[hypnotoad72]

bmiller999 - Since cbsnews had put up other economy-related articles saying "X company's lack of profits here were made up by profits overseas", I think it's not unsafe to assume America just isn't needed anymore?

:(

But there is hope. To make the jobs at the wages Indians and Chinese workers think is luxury (all those articles talking of those countries' booming middle classes can't be wrong), all the dollar need do is drop. Globalization will become a reality with America being properly competitive once again, now that wages (and cost of living) have been corrected. They prosper, we prosper, it's all good. Hurry up, Amero.

[rushlimpdrug]

Next generation of Americans:
"Would you like fries with that?
Would you like to supersize it?
Oh, I will get your order as soon as I get back from moving my brand new BMW.
Boy, I make sooooo much money working for the service industry!"

[shanev137]

The housing market....what a joke. All it will be from here on out is the rich buying houses from the rich. The median income can not afford the median house, plus only people with 20% down and stellar credit can qualify anymore. Gee...i wonder where the whole housing market is going to go. lol

[omega39-2009]

Posted by bmiller999

Bmiller999, read this interview with economist John Williams. It is a real eye opener.

www.weedenco.com/welling/Downloads/2006/0804welling022106.pdf

[bmiller999]

I've seen people call this a "correction" on the housing market bubble. But I personally think this is just the beginning of a total downhill economic slide. Caused by the loss of middle class wages.

Someone please do a Standard of Living study (adjusted for inflation please!). I'd like to see where we stand from 50 years ago. And please focus on incomes UNDER $100,000 a year. We already know the rich are doing better.

[setumstrt9]

Hey Simplemind2,

Do you want to compare return on investment over the past few years? While you were taking financial advice from your kid, I've been staking my 401K in agressive mutual funds.

You've barely beating inflation. Good luck to ya!!!!

[setumstrt9]

Hey Simplemind2,

Do you want to compare return on investment over the past few years? While you were taking financial advice from your kid, I've been staking my 401K in agressive mutual funds.

You've barely beating inflation. Good luck to ya!!!!

[bmiller999]

No one talks about how much the average income for your "average" american has gone down. All we ever hear is how Bush's admin created xxxxxx number of jobs that month. You never hear about all the high paying jobs that have be sold out to other countries. And how most of these wonderful new jobs are low paying service jobs (remember we are "transitioning" to the new american economy!)

When someone buys a home while employed at a good, high paying, job and then has to take a low paying job. Odds are that family won't be able to meet the financial obligations they took on when they were making that much higher income. No one seems to be talking about this though. And I don't understand why?

What I'm wondering is when all our good middle class jobs are gone and everyone is making "service job" income how will anyone afford to buy the products that companies are now making elsewhere but importing back here? Let alone be a home owner anymore.