Woeful Housing Report Drags Down Stocks
Thursday, February 26, 2009
Stocks fell yesterday in volatile trading as new details emerged about how the government will test the stability of some of the country's largest banks and poor housing data were released.
The Dow Jones industrial average fell 80.05 points, or 1.1 percent, to 7270.89, while the Standard & Poor's 500-stock index fell 8.24 points, also 1.1 percent, to 764.90. The tech-heavy Nasdaq composite index lost 16.40 points, or 1.1 percent, to 1425.43.
Prices have swung wildly this week, with stocks plunging Monday on fears that the government could be forced to nationalize banks, then rebounding sharply Tuesday. But, analysts said, investors remain concerned about the state of the economy.
Most of the market's focus yesterday was on details of the "stress test" the Obama administration will use to measure how much capital many of the largest banks will need to survive. Under the plan, the government could purchase preferred shares of bank stocks that could be converted to common shares, a change meant to give financial markets greater confidence.
That helped address some of the uncertainty that has been plaguing Wall Street, analysts said. "I don't think this is the death sentence [for troubled banks] that a lot of people thought," said James Cox, managing partner at Harris Financial Group in Richmond. "It looks and says that if you need capital, it will be there."
Banking stocks moved through big losses and gains yesterday before closing mostly higher. Bank of America rose 9 percent, to $5.16 a share, while J.P. Morgan Chase was up 3 percent, to $21.73 a share. Citigroup lost about 3 percent, to $2.52 a share.
Weighing down stocks yesterday were data from the National Association of Realtors showing that existing-home sales fell 5.3 percent, to a seasonally adjusted 4.49 million units, in January. That was far worse than analysts expected and the slowest sales rate since 1997, according to the industry group. Median home prices fell 14.8 percent in January, to $170,300, the lowest level since March 2003.
The report reinforces worries that the country's housing crisis is deepening, analysts said. "At some point, prices will drop so much that sales will start to pick up," Patrick Newport, U.S. economist for IHS Global Insight, said in a research note. "So far, this has yet to happen, despite the fact that housing is as affordable now as it has been in decades."
Crude oil prices climbed 6 percent, to $42.50 a barrel, on the New York Mercantile Exchange.