MarketView for February 23

Summary 

Share prices declined sharply for a second straight day on Wednesday as Libya's violence saw oil prices briefly reach the $100 per barrel level, while tech shares fell, adding credence to calls for a market correction. Oil futures jumped to their highest since October 2008 amid worries about supply disruptions in Libya, a top oil producer. Late in the day, oil eased off the day's highs, helping stocks trim losses.

The day's drop was the second straight session of above-average trading volume. However, since a modest correction is expected, investors at this point are taking the declines in stride. The Nasdaq led the downward parade as recent top gainers also lost ground, including Netflix, down 4.7 percent at $211.20, and Salesforce.com, down 2.5 percent to close at $133.37.

Hewlett-Packard cut its 2011 revenue forecast on slipping demand for its personal computers, and at least six brokerages cut their price targets on the stocks. Its share price ended the day down 9.6 percent to close at $43.59.

The S&P 500 index has climbed nearly 25 percent since the start of September meaning that a short-term correction would come as no surprise. However, the S&P index recovered from hitting an intraday low of 1,299.55 during the session. Technicians eyed support at 1,296, the mid-January highs on the S&P 500, and also 1,286, the 50-day moving average. Some even saw the drop as a positive as it gives investors the chance to buy stocks on the dip, noting that the longer-term outlook remains bullish for stocks even if equity markets slip further.

Priceline.com rose 6.8 percent to $455.08 in extended-hours trading after the online travel agency posted a higher quarterly profit as bookings increased 44 percent.

While higher oil prices often raise energy-sector shares, they usually drag on the overall stock market. Higher energy costs tend to reverberate through the economy, pushing up the costs of utilities, manufactured goods and transportation.

Volume was active with about 10.32 billion shares traded on the three major exchanges, above the daily average of 7.99 billion shares.

Home Prices Fall

Sales of distressed properties sent prices for previously owned homes falling to a near nine-year low in January, even as they helped to lift overall sales to an eight-month high.

The National Association of Realtors said on Wednesday existing homes sales climbed 2.7 percent to an annual rate of 5.36 million units, marking the third straight month of gains. Economists had expected a fall to a 5.24 million-unit pace.

However, foreclosures and short sales, which typically occur below market value, accounted for 37 percent of the transactions and suggested further price declines ahead. The median home price fell 3.7 percent from a year ago to $158,800, the lowest since April 2002. Data on Tuesday indicated that prices for single-family homes tracked by Standard & Poor's/Case Shiller fell for a sixth straight month in December, and some economists warned they could fall another 25 percent.

An overhang of foreclosed properties is weighing down the housing market even as the broader economy has entered a sustainable growth path. Housing was at the core of the worst recession since the 1930s.

Sales rose even as demand for home loans slumped in January. The NAR has been accused of overstating the rate of home sales by as much as 20 percent. While acknowledging the trade group might have over counted sales, NAR chief economist Lawrence Yun told reporters: "I would be highly surprised if it was 20 percent."

The NAR is reviewing its data and will release benchmark revisions later this year. Yun said the last benchmark revisions in 2000 showed an over counting of about 13 percent.

The share of distressed sales last month, at 37 percent, was the highest in a year. All-cash purchases made up 32 percent of transactions compared with 29 percent in December. Analysts said this partly explained why home re-sales had surprised on the upside, when home loan applications had dropped sharply.

Applications for home loans rebounded last week as buyers rushed to take advantage of a slide in mortgage rates in the wake of the growing unrest in the Middle East, the Mortgage Bankers Association said. The existing home sales report also showed a shift in the housing market becoming more pronounced, with growth in multifamily units outpacing single-family homes.

Demand for rental apartments is on the increase, boosting sales of multifamily dwellings, as families lose their homes to foreclosure and prospective homeowners shy away from owning a property because of falling values. At January's sales pace, the supply of existing homes on the market fell to 7.6 months' worth, the lowest since December 2009, down from 8.2 months' worth in December. A supply of between six and seven months is generally considered as ideal, with higher readings pointing to lower house prices.