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Fed concerned over severe housing market pullback Original Source Link: (May no longer be active)
http://www.forbes.com/business/businesstech/feeds/ap/2007/01/03/ap3296041.htmlhttp://www.forbes.com/business/businesstech/feeds/ap/2007/01/03/ap3296041.html
Associated Press
Stocks Fall After Fed Minutes
By TIM PARADIS 01.03.07, 3:38 PM ET
Stocks gave up substantial early gains and turned lower in the first session of 2007 after minutes from the Federal Reserve's last meeting showed growing concern at the central bank about the severity of the pullback in the housing sector.
Though the minutes from the Fed's Dec. 12 meeting said inflation continues to moderate, the bleak assessment of the housing market unnerved investors who were betting that the sector's problems wouldn't necessarily spill over into other portions of the economy.
Release of the minutes sapped strength out of the market on a day that earlier had seen triple-digit gains and a new trading high for the Dow Jones industrials.
"The concern is that the Fed was seeing something at their last FOMC meting that suggested potentially more pronounced weakness than we had all been anticipating in the economy," said Drew Matus, senior economist at Lehman Brothers Inc.
In late afternoon trading, the Dow was down 25.96, or 0.21 percent, to 12,437.19 after earlier surging more than 100 points to a new trading high of 12,580.35.
Broader stock indicators also fell. The Standard & Poor's 500 index was down 6.76, or 0.48 percent, at 1,411.54, and the tech-laden Nasdaq fell 9.93, or 0.41 percent, to 2,405.36.
Bonds rose following release of the Fed minutes, with the yield on the benchmark 10-year Treasury note fell to 4.67 percent from 4.71 percent late Friday.
The dollar was mixed against other major currencies, while gold prices fell.
Light, sweet crude fell $2.98 to $58.07 per barrel on the New York Mercantile Exchange as mild weather continued its hold over much of the United States, cutting demand for heating oil and natural gas.
Matus contends the pullback in the markets was overblown given recent data.
"It doesn't make a lot of sense to react to something that is three weeks old and doesn't incorporate the data that we got between now and then. The manufacturing data today suggests things were going OK as we headed into the end of the year."
Nonetheless, investors' concerns only seemed to grow. A weak showing by General Motors Corp. Wednesday afternoon hurt stocks. The world's largest automaker was down $1.54, or 5 percent, at $29.19 after lowering its 2007 production forecast and reported its U.S. sales fell 9.6 percent in December.
Earlier in the day, investors had cheered mostly solid readings on the economy and found reason for increased prospects for big-name retailers Home Depot Inc. and Wal-Mart Stores Inc.
With markets closed Tuesday to mark the funeral of President Gerald R. Ford, Wall Street returned from its longest hiatus - four days - since the aftermath of the Sept. 11, 2001, terrorist attacks. Shortly after they got back to work, investors received a stronger-than-expected report on December manufacturing from the Institute for Supply Management and saw a softer-than-expected decline in construction spending. The ISM index came in at 51.4, stronger than the reading of 50 that had been expected. A reading above 50 signals expansion in the manufacturing sector; November's figure of 49.5 marked the first time the report showed contraction in nearly four years.
Construction spending dropped by a less-than-expected 0.2 percent in November as housing activity fell for a record eighth straight month. The Commerce Department reported building activity edged down to a seasonally adjusted annual rate of $1.18 trillion.
News that Home Depot's Bob Nardelli resigned as chairman and chief executive of the world's largest home improvement chain gave a boost to stocks as had a weekend report that Wal-Mart's December same-store sales rose 1.6 percent, topping the company's forecast that growth would be flat or up as much as 1 percent. Home Depot rose 84 cents, or 2.1 to $41, while Wal-Mart advanced $1.27, or 2.8 percent, to $47.45.
Home builders were weaker even ahead of the Fed minutes. Lennar Corp., the biggest U.S. builder, warned that it expects to post a loss in the fourth quarter and its chief executive said he see no signs of a recovery in the housing market. Lennar fell $2.01, or 3.8 percent, to $50.42.
In other corporate news, Cytokinetics Inc. surged 75 cents, or 10 percent, to $8.23 on news it would work with Amgen Inc. to develop drugs to combat heart failure. Amgen was off 11 cents at $68.20.
Sirius Satellite Radio Inc. rose 19 cents, or 5.4 percent, to $3.73 after the radio service said its subscriber base jumped 82 percent to more than 6 million last year.
Goodyear Tire & Rubber Co. advanced $1.68, or 8 percent, to $22.67 and moved as high as $22.77 to surpass a 52-week high of $21.35 after a three-month strike that had hurt production ended.
Declining issues outnumbered advancers by about 6 to 5 on the New York Stock Exchange, where volume came to 1.62 billion shares, compared with 1.32 billion traded at the same point Friday, a day of anemic volume ahead of the New Year's holiday.
The Russell 2000 index of smaller companies was down 6.55, or 0.83 percent, at 781.11.
Overseas, Japan's stock market was closed for the continuing New Year's holiday. Britain's FTSE 100 closed up 0.13 percent, Germany's DAX index was up 0.15 percent, and France's CAC-40 was down 0.12 percent.
Copyright 2006 Associated Press.
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