Stocks Slide Over 1%; Homebuilders Climb
Stocks continued their selloff Tuesday after a dismal report on existing home sales renewed worries about the economic recovery.
The Dow Jones Industrial Average was down more than 100 points as the closing bell approached, led by Boeing , Caterpillar and Alcoa , after being down almost 200 earlier.
If the trend holds, this would be the fourth straight decline for the Dow, which has lost 2.3 percent in the past three sessions.
The S&P 500 and the Nasdaq were both down more than 1 percent. The S&P 500 is near short-term oversold levels, according to the 14-day relative strength index, which dipped near the 30 level. The CBOE volatility index, widely considered the best gauge of fear in the market, was above 26.
Existing-home sales fell 27.2 percentin July to an annual rate of 3.83 million units, their lowest pace in 15 years. The prior month was revised lower to show a 5.26 million-unit pace.
The market's decline had initially accelerated amid disappointing in the housing report but soon snapped back as some pockets of gains began to emerge, most notably, in housing stocks.
KB Home , DR Horton and Lennar were among the biggest gainers in the sector. Luxury homebuilder Toll Brothers is scheduled to report earnings Wednesday.
“I would stay away from the housing sector right now," warned Todd Schoenberger, managing director at LandColt Trading. "You’re going to have massive deflationary pressure on housing prices based on today’s numbers, home sellers cutting prices big time and shadow inventory."
Instead, Schoenberger suggested investors look into the travel and leisure sector and noted that the Dow Jones Travel & Leisure index has tripled the S&P 500 this year.
David Rosenberg, chief economist at Gluskin Sheff, went even further, using the "D" word in reference to the entire economy — not just the housing sector.
"[W]e are finally exiting the denial stage and heading towards acceptance," Rosenberg said in a note to clients. "[T]his is a depression, and not just some garden-variety recession." He argues that the Obama administration's stimulus measures aren't working and when the U.S. moves away from them, then they "will likely have much more reason to turn optimistic."
Of course, doom is a two-sided coin: Nobel-prize winning economist Joseph Stiglitz said Europe is at risk for a double-dip recession because of all the austerity measures there, in an interview with a radio station in Ireland.
Still to come on the housing front, reports on new home sales and weekly mortgage applications are due out Wednesday. New home sales are forecast to be little changed from the previous month at 330,000 according to a consensus from Thomson Reuters.
A few earnings reports to note:
Medtronic skidded more than 10 percent after the medical-device maker reported its earnings rose but sales fell amid softness in the global health-care market.
Burger King was flat after the fast-food chain reported weaker-than-expected revenueand said business would remain under pressure.
And shares of Big Lots fell more than 3 percent even after the discount retailer's earnings beat expectations. The company also raised its forecast for 2010 earnings for the second time.
On the M&A front, Dell may raise its $18-a-share bidfor 3Par to match or exceed Hewlett-Packard's $24-a-share counter offer, according to reports.
Technology, along with financials and industrials, has been leading the market lower in its August slump.
Market pros are getting increasingly worried about tech as even sector darling Apple has struggled. Apple shares are down over 1 percent today and have underperformed in the past month.
Analyst Dennis Gartman, in his daily Gartman Letter, noted Tuesday that "since mid-June Apple has not only failed to make new highs, it has made lower highs and now lower lows. Having closed at $246 last evening, more than 10% below its all time high, the chart looks ominous."
The latest news on the Potash front is that Rio Tinto may bid for fertilizer maker, along with a Chinese partner. Potash is talking with other potential suitors in a bid to get a better price than the nearly $39 billion being offered by Australia's BHP Billiton. BHP Billiton is expected to report earningsWednesday before the bell.
Genzyme and Sanofi-Aventis are continuing discussionsabout a Sanofi takeover of Genzyme, though they still haven't agreed on a price, according to the Wall Street Journal.
Pfizer shares slipped after the company said its lung cancer treatment Sutent failed to meet its goal for longer overall survival in a late-stage trial.
Treasurys soared after the government auctioned $37 billion of 2-year bonds, which had a high yield of 0.498 percent and a bid-to-cover of 3.12.
Auctions of 5-year and7-year notes are expected on Wednesday and Thursday, respectively.
Oil fell below $72 a barrel, down for the fifth consecutive day. While most oil giants were lower, drillers such as Transocean , Halliburton and Diamond Offshore were up more than 2 percent each.
Shares of Borders Group tumbled following news that the company's finance chief has resigned to take another job. This followed the departure of the CEO earlier this year.
WEDNESDAY: MBA mortgage applications, advance report on durable sales, new home sales, weekly oil inventories, 5-year Treasury note auction; Earnings from BHP Billiton, Toll Brothers
THURSDAY: Weekly jobless claims, 7-year Treasury note auction.
FRIDAY: GDP, corporate profits, consumer sentiment; Earnings from Tiffany
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