08/23 market view report from WSJ

Stocks Dip on Housing Data
August 23, 2006 1:50 p.m.

Stocks declined Wednesday after a report showing the housing market is cooling off more rapidly than previously thought spooked investors and raised concerns about the strength of the economy.

The National Association of Realtors reported that July existing-home sales fell 4.1% to a seasonally adjusted annual rate of 6.33 million, the slowest pace since January 2004. The decline was far sharper than the 0.9% decline expected. Sales are down 11.2% from a year ago.

Inventories jumped 3.2% to a record high of 3.9 million, a 7.3-month supply at the current pace of sales, the longest since April 1993.

Housing stocks dipped on the report. The Philadelphia Housing Sector Index fell 1.5%, with some of the steepest declines coming from Beazer Homes, Centex and KB Home.

Investors have been worried about whether a hard landing in housing could spill over into the broader economy. With consumers increasingly dependent on the rising value of their homes as well as the boost from mortgage equity withdrawals, a sharp decline in housing could have an outsized impact on growth, economists warn, possibly triggering a recession in 2007.

The Dow Jones Industrial Average, up about 20 points before the report, fell back as traders weighed the data, recently slipping 67.15 points to 11272.69. General Motors shed 2% amid a report that Ford Motor is seeking an alliance with Nissan Motor Chief Executive Carlos Ghosn. GM's stock jumped in late June and early July amid reports that the beleaguered auto maker might be considering a tie-up with Nissan. Ford's stock is up 5%.

The Standard & Poor's 500-stock index fell 8.04 to 1290.78 and the Nasdaq Composite Index slid 19.57 to 2130.45, led by weakness in telecom stocks.

Treasury bonds declined, sending yields lower. Gold prices rose $4.50 to $630 a troy ounce on the Comex division of the New York Mercantile Exchange.

Light, sweet crude-oil prices fell $1.60 to $71.50 a barrel on the New York Mercantile Exchange after the Energy Information Administration said crude-oil inventories fell less than expected and distillate stocks rose more than expected last week.

While the cooling housing market and oil prices are always on the radar, what seems most eye-catching on Wall Street is what's not happening. In recent days, trading has ground down to a virtual standstill during the August doldrums. In the past two days, composite trading volume on the Big Board has been among the lowest of the year, coming in under two billion shares changing hands per day.

"The markets have been incredibly quiet this week," "the four-day moving range in the Dow Jones Industrial Average has been 0.75%, one of the smallest ranges in the past 20 years."

"The late weeks of August…can be very slow,"  "Volume is often light and volatility low.  That is true of yesterday and could be true again today."

Investors had a bit of merger news to digest Wednesday. International Business Machines agreed to acquire Internet Security Systems for $1.3 billion, or $28 a share. Shares of Internet Security rose 7%.

And Weyerhaeuser agreed to sell its fine-paper operations to Domtar, a Canadian paper maker, in a cash-and-stock deal valued at $3.3 billion. Shares of Domtar rose about 2%, while timber giant Weyerhaeuser gained 3%.

Shares of National Semiconductor rose 2.3% despite the company's decision to cut its revenue outlook for the fiscal first quarter of 2007 due to weak shipments of wireless handsets, among other things. Analysts cited continued strength in gross margins for the pop in the company's shares.

In major market action:

Stocks fell.On the New York Stock Exchange, 865 stocks advanced and 2,378 declined on volume of 752.5 million shares.

Bonds slipped.The 10-year note lost 4/32, or $1.25 per $1,000 invested, to yield 4.827% Wednesday, and the 30-year note was off 8/32 to yield 4.964%.

The dollar was mixed.The euro was at $1.2796 from $1.2801 late Tuesday, while the dollar was at 116.44 yen from 116.55 yen.