May 19, 2009 5:03 PM
- Text
Mood Dims, But Stock Finish Nearly Flat
(CBS/AP)
Investors curbed their optimism about an economic recovery Tuesday after housing construction tumbled to a record low.
The Dow Jones industrial average fell 29 points. Home Depot was the index's worst performer, down more than 5.5 percent following the surprise drop in construction. The company also issued a cautious earnings outlook.
The S&P 500 fell 2 points. The Nasdaq gained 2.
The Commerce Department said construction of homes and apartments fell 12.8 percent last month to the lowest pace on records going back a half-century. Analysts had expected housing starts to rise.
The report did contain some positive signs including a rebound in single-family construction, which partly offset a drop in apartment building. Analysts also pointed out that a drop in new construction is necessary to rid the housing market of excess inventory.
But by this point, investors were hoping for evidence that the three-year slide in housing is ending - something that is vital for the broader economy to rebound.
"It's hard enough to get going after you've been up 30 percent in the S&P 500 in 10 weeks," said Hugh Johnson, chief investment officer of Johnson Illington Advisors. "When you have news that's as deflating as this, it gets nearly impossible."
On Monday, encouraging news from Home Depot rival Lowe's Cos. and an improving outlook for banks had pushed the Standard & Poor's 500 index back into positive territory for the year.
Wall Street has been trying to get a read on the housing market for months as investors look for solid signs the economy is recovering. Stocks surged more than 3 percent on May 4 following unexpected increases in pending home sales and construction spending. But a rising inventory of unsold homes and record foreclosures are swallowing much of the demand, making it hard for prices to stabilize.
About two stocks rose for every one that fell on the New York Stock Exchange, where volume came to 953.9 million shares.
Meanwhile, the Federal Reserve announced Tuesday that banks receiving bailout funds may be able to begin repaying taxpayers in June.
"According to people familiar with the matter, JPMorgan, Goldman Sachs and Morgan Stanley have all applied to return taxpayer money to the government. If the fed says yes to the banks request to return money, it shows the government is comfortable with banks' health," Bloomberg TV's Deirdre Bolton told Early Show news anchor Russ Mitchell Tuesday.
In a positive sign for Wall Street, one measure of the market's uneasiness fell again after sliding 8.7 percent Monday. The Chicago Board Options Exchange Volatility Index, or the VIX, fell below 30 on Tuesday for the first time since September. It hit a record 89.5 in October at the height of the financial market meltdown. The historical average is 18-20. The drop signals investors are more confident they can predict the direction of stocks and that they expect less volatility.
David Kelly, chief market strategist at JPMorgan Funds, said the drop in expectations for volatility and the market's calm response to bad economic news in light trading is a departure from only months ago when stocks likely would have tumbled.
"The market was assuming the economy would never come around. Even though we are waiting for a turnaround, this certainly is indicative of an economy that is stabilizing," he said.
Kelly added that every day without another proverbial shoe dropping helps traders build confidence.
"Every shoeless day is a good day," he said.
Home Depot fell $1.27, or 4.9 percent, to $24.75 after the company said its markets are still under pressure. Profits at the nation's largest home improvement retailer climbed 44 percent as the company booked fewer charges.
Rising prices for oil and materials lifted energy and commodity stocks. Rising prices are often seen as a sign that investors are expecting economic activity will increase and drive demand for raw materials. Peabody Energy Corp. rose $1.22, or 4 percent, to $31.98, while the utility PPL Corp. rose $1.22, or 4 percent, to $31.98.
Light, sweet crude rose 62 cents to $59.65 a barrel on the New York Mercantile Exchange.
Credit card companies lost ground after the Senate voted to prevent them from arbitrarily raising consumers' interest rate and charging many of the high fees that have become customary. American Express Co. fell $1.01, or 3.9 percent, to $25.12, while Capital One Financial Corp. fell 69 cents, or 2.7 percent, to $25.37.
In other trading, the Russell 2000 index of smaller companies rose 1.40, or 0.3 percent, to 496.19.
Bond prices were mixed, pushing the yield on the 10-year Treasury note up to 3.25 percent from 3.24 percent late Monday.
The dollar was mixed against other major currencies, while gold prices rose.
Overseas, Britain's FTSE 100 rose 0.8 percent, Germany's DAX index rose 2.2 percent, and France's CAC-40 rose 0.9 percent. Japan's Nikkei stock average jumped 2.8 percent.
The Dow Jones industrial average fell 29 points. Home Depot was the index's worst performer, down more than 5.5 percent following the surprise drop in construction. The company also issued a cautious earnings outlook.
The S&P 500 fell 2 points. The Nasdaq gained 2.
The Commerce Department said construction of homes and apartments fell 12.8 percent last month to the lowest pace on records going back a half-century. Analysts had expected housing starts to rise.
The report did contain some positive signs including a rebound in single-family construction, which partly offset a drop in apartment building. Analysts also pointed out that a drop in new construction is necessary to rid the housing market of excess inventory.
But by this point, investors were hoping for evidence that the three-year slide in housing is ending - something that is vital for the broader economy to rebound.
"It's hard enough to get going after you've been up 30 percent in the S&P 500 in 10 weeks," said Hugh Johnson, chief investment officer of Johnson Illington Advisors. "When you have news that's as deflating as this, it gets nearly impossible."
On Monday, encouraging news from Home Depot rival Lowe's Cos. and an improving outlook for banks had pushed the Standard & Poor's 500 index back into positive territory for the year.
Wall Street has been trying to get a read on the housing market for months as investors look for solid signs the economy is recovering. Stocks surged more than 3 percent on May 4 following unexpected increases in pending home sales and construction spending. But a rising inventory of unsold homes and record foreclosures are swallowing much of the demand, making it hard for prices to stabilize.
About two stocks rose for every one that fell on the New York Stock Exchange, where volume came to 953.9 million shares.
Meanwhile, the Federal Reserve announced Tuesday that banks receiving bailout funds may be able to begin repaying taxpayers in June.
"According to people familiar with the matter, JPMorgan, Goldman Sachs and Morgan Stanley have all applied to return taxpayer money to the government. If the fed says yes to the banks request to return money, it shows the government is comfortable with banks' health," Bloomberg TV's Deirdre Bolton told Early Show news anchor Russ Mitchell Tuesday.
In a positive sign for Wall Street, one measure of the market's uneasiness fell again after sliding 8.7 percent Monday. The Chicago Board Options Exchange Volatility Index, or the VIX, fell below 30 on Tuesday for the first time since September. It hit a record 89.5 in October at the height of the financial market meltdown. The historical average is 18-20. The drop signals investors are more confident they can predict the direction of stocks and that they expect less volatility.
David Kelly, chief market strategist at JPMorgan Funds, said the drop in expectations for volatility and the market's calm response to bad economic news in light trading is a departure from only months ago when stocks likely would have tumbled.
"The market was assuming the economy would never come around. Even though we are waiting for a turnaround, this certainly is indicative of an economy that is stabilizing," he said.
Kelly added that every day without another proverbial shoe dropping helps traders build confidence.
"Every shoeless day is a good day," he said.
Home Depot fell $1.27, or 4.9 percent, to $24.75 after the company said its markets are still under pressure. Profits at the nation's largest home improvement retailer climbed 44 percent as the company booked fewer charges.
Rising prices for oil and materials lifted energy and commodity stocks. Rising prices are often seen as a sign that investors are expecting economic activity will increase and drive demand for raw materials. Peabody Energy Corp. rose $1.22, or 4 percent, to $31.98, while the utility PPL Corp. rose $1.22, or 4 percent, to $31.98.
Light, sweet crude rose 62 cents to $59.65 a barrel on the New York Mercantile Exchange.
Credit card companies lost ground after the Senate voted to prevent them from arbitrarily raising consumers' interest rate and charging many of the high fees that have become customary. American Express Co. fell $1.01, or 3.9 percent, to $25.12, while Capital One Financial Corp. fell 69 cents, or 2.7 percent, to $25.37.
In other trading, the Russell 2000 index of smaller companies rose 1.40, or 0.3 percent, to 496.19.
Bond prices were mixed, pushing the yield on the 10-year Treasury note up to 3.25 percent from 3.24 percent late Monday.
The dollar was mixed against other major currencies, while gold prices rose.
Overseas, Britain's FTSE 100 rose 0.8 percent, Germany's DAX index rose 2.2 percent, and France's CAC-40 rose 0.9 percent. Japan's Nikkei stock average jumped 2.8 percent.
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