MarketView for October 28

Summary  

Wall Street suffered through another broad sell-off on Wednesday, sending the S&P 500 lower for a fourth straight day, the result of weak data on new home sales, along with the same tired old theme that the economic recovery is not taking place as fast as many had hoped. Financials, technology, materials and industrial sectors, which underpinned the market's advance from March, bore the brunt of the day’s selling activity.

Among the financials, JPMorgan fell 2.8 percent to $42.68, while American Express was down 3.6 percent to $34.67. On the technology front, Apple closed down 2.5 percent at $192.40, making it the Nasdaq's top drag as the Nasdaq also logged its fourth straight daily decline.

Wednesday's sell-off marked the broader market's worst day of losses in nearly a month, while the CBOE Volatility Index, Wall Street's favorite fear gauge, ended up 12.5 percent, its largest one-day percentage gain since August.

During the session, both the S&P 500 and the Nasdaq broke below key technical levels as the sell-off accelerated. Both indexes closed below their 50-day moving average for the first time since July, a bearish technical signal.

Among the natural resource companies, Alcoa fell nearly 7 percent to $11.93, while Caterpillar fell 4 percent to $54.43. 3M fell 2 percent to close at $74.46.

In economic news, the Commerce Department reported that sales of newly built single-family homes fell unexpectedly by 3.6 percent last month, while data from the Mortgage Bankers Association showed demand for mortgages has fallen for the past three weeks.

The housing data was an additional hurdle for the markets because of the uncertainty over the future of the government's $8,000 home buyer tax credit. However, it is becoming increasing likely that the tax credit for first-time home buyers will be extended until the end of April and might even be expanded to cover previous home buyers.

Meanwhile, the housing data underscored the stickiness of the real estate downturn amid a tough job market, tighter lending and sliding home values. At the same time, there was some additional bad news in that Goldman Sachs cut its forecast for third-quarter gross domestic product, a gauge of all goods and services produced within the U.S. borders, to 2.7 percent from 3.0 percent. The government will release its first estimate of third-quarter GDP on Thursday.

New Home Sales Fall

New home sales fell unexpectedly during September, the first decline in six months, underscoring the hazards to an economic recovery that businesses appeared to be banking on. New single-family home sales fell 3.6 percent to a 402,000 unit annual pace from a downwardly revised 417,000 units in August, the Commerce Department said on Wednesday.

The housing data represented a road bump in a recovery that otherwise appears to be widening. Another report from the Commerce Department showed that new orders for long-lasting U.S. manufactured goods rose 1 percent in September as business stepped-up investment plans.

Despite the drop in sales, the number of new homes for sale at the end of the month shrank to its lowest level in 27 years, leaving the supply of homes available at 7.5 months' worth. The median sales price rose in September to $204,800 from $199,900, while the average sales price rose to $282,600 from $265,500.

In a separate report the Mortgage Bankers Association on Wednesday showed demand for mortgages has fallen for the past three weeks as buyers move to the sidelines ahead of the November 30 expiration of a popular home-buyers' tax credit.

According to the ABA  its mortgage applications index fell 12.3 percent to 562.3 for the week ended October 23, with purchase applications the weakest since mid-May and refinancing requests at a two-month low. Eligible borrowers who applied last week would unlikely be able to close their loan by the scheduled November 30 expiration of the tax credit. The $8,000 credit, which expires on November 30, helped lift the housing market from its deepest downturn since the Great Depression. U.S. lawmakers are considering extending it.

Durable Goods Orders Rise

According to a report by the Commerce Department, shipments of durable goods rose 0.8 percent in September and have been up for three of the last four months, while inventories fell for the ninth month in a row, by 1 percent. The increase in new orders for long-lasting U.S. manufactured goods met Wall Street expectations and was the second increase in the last three months, offering some hope that the economic recovery will continue. However, compared with a year ago, orders were down 24.1 percent.

Durable goods orders are a leading indicator of manufacturing, which in turn provides a good measure of overall business health.

There are concerns that the continued paring of inventories will be a drag on economic growth. The Commerce Department will report third-quarter gross domestic product on Thursday, and the Street is looking for a 3.3 percent rise, based on rebounds in consumer spending and the housing market.

Energy Prices Fall

Energy prices were lower on Wednesday after the Energy Department reported a higher than expected increase in gasoline supplies. Retail gasoline prices have been moving higher since the middle of the month, around the same time that crude futures hit the $75 per barrel level for the first time this year. The rising cost of crude and ensuing production cuts by refiners has helped push gasoline prices higher for 15 days in a row.

However, the report by the Energy Information Administration on Wednesday seemed to remove concerns over a possible tightening of gasoline supplies, at least for now as supplies rose by nearly 2 million barrels. Meanwhile, gasoline futures on the New York Mercantile Exchange fell 4 percent, though the prices that people see at the pump rose slightly overnight.

Refiners are buying less crude to make fuel because demand from airlines, trucking companies and motorists remains relatively week. Diesel and jet fuel demand are both down over the past four weeks compared with last year, the government reported Wednesday.

Unable to pass off cost increase for the crude they must buy, refiners have shut down operations and production is currently at levels more common in the aftermath of a hurricane.

That is part of the reason why retail gasoline prices have been on a two-week upswing.

Even with energy demand low, the falling value of the dollar is driving crude futures higher. When the dollar falls those holding euros or other relatively strong currencies can buy more crude because it's bought and sold in dollars. The dollar gained strength on Wednesday, and crude prices fell.

Sweet domestic crude futures for December delivery settled down $2.09 per barrel at $77.46. In London, Brent crude for December delivery settled down $2.06 per barrel at $75.86.

Retail gas prices added eight-tenths of a cent overnight to $2.683, according to auto club AAA, Wright Express and Oil Price Information Service. That's 8.7 cents higher than last week and 5.4 cents above what it was at this point last year.

now, but also because gasoline was tumbling at this time in 2008 as the financial crisis spread.

In other Nymex trading, heating oil tumbled 5.82 cents to settle at $1.9969 a gallon. Gasoline for November delivery also fell sharply, 8.41 cents to settle at $1.9864 a gallon. Natural gas for November delivery fell 27 cents to settle at $4.289 per 1,000 cubic feet.