Stocks Slammed by Weak Data

Major indexes ended sharply lower Thursday following worse than expected reports on new home sales, initial jobless claims, and durable good orders

By Will Andrews

Financial markets' tentative optimism ahead of the passage of a U.S. stimulus plan -- which helped fuel a four-day advance for major equity indexes -- was swept aside Thursday by another grim round of economic reports. The worse than expected data on new home sales, durable goods orders, and weekly first-time jobless claims sent U.S. stock indexes sharply lower.

Traders may have also been spooked by talk that Congress is considering measures to ban naked short selling and restrict trading in credit default swaps, according to S&P MarketScope. Weak earnings reports from Allstate (ALL), Ford Motor Co. (F), Qualcomm (QCOM) and other companies also dampened the market's mood.

Stocks snapped a four-day winning streak Thursday as fresh signs of economic weakness led to broad-based profit taking in the market. The 30-stock Dow Jones industrial average finished lower by 226.44 points, or 2.70%, at 8,149.01. The broad S&P 500 index was off 28.98 points, or 3.32%, at 845.11. And the tech-heavy Nasdaq composite index fell 50.50 points, or 3.24%, to 1,507.84.

On the New York Stock Exchange, 25 stocks were trading lower in price for every six that advanced. Nasdaq breadth was 21-6 negative.

Treasuries were sharply lower in price after an auction of 5-year notes produced mediocre results. The yield on the 10-year note climbed to 2.86%. The dollar index was higher. Gold futures were higher, while crude oil futures were mixed.

"Today's U.S. economic reports ranged from bad to worse," says Action Economics chief economist Michael Englund.

Where to begin? U.S. new home sales dropped 14.7% to a 331,000 unit annual pace in December, from a downwardly revised 388,000 in November (from 407,000 previously). October's 419,000 pace was revised to 406,000. And net revisions over the prior several months were -40,000. Declines were posted in all four regions.

The months' supply of homes climbed to 12.9 from a revised 12.5 (was 11.5 previously). There were 357,000 homes for sale, versus 397,000 in November (revised from 374,000). The median price declined to $206,500 from $219,700 (revised from $220,400). That's down 9.3%, year-over-year.

Morgan Stanley economist Ted Wiesman notes that homebuilders say they are unable to compete with the flood of foreclosed homes hitting the market at fire sale prices. "Even with housing affordability surging, efforts to stem foreclosures remain key to stabilizing the housing market," he wrote in a note Thursday.

There was more bad news from the manufacturing sector. Orders for durable manufactured goods fell 2.6% in December, the fifth consecutive monthly decline. The drop was even worse than the negative 1.8% expected by the consensus. The decline follows a 3.7% November drop. Aircraft orders plunged 43.6%, after a 46.3% November drop, reflecting production difficulties at Boeing. Defense aircraft orders were up 16.4%, however. Excluding the 32.9% rise in defense orders, orders fell 4.9%. Shipments, a more stable indicator, fell 0.7% in December after a 4.2% November drop.

"The report is worse than expected, with declines in virtually every nondefense category," says S&P senior economist Beth Ann Bovino. "The manufacturing sector continues to deteriorate."

Meanwhile, data on the number of Americans filing first-time claims for unemployment pointed to worsening conditions in the the labor market. U.S. jobless claims rose 3,000 to 588,000 for the week ended January 24, stronger than the 570,000 expected by markets.