Stocks fall after agency cuts Portugal debt rating
NEW YORK (AP) – Major stock indexes fell from their 2010 highs Wednesday as weakness in the housing market and rising European debt loads revived investors’ pessimistic view of the economy.
The Dow Jones industrial average fell about 53 points. It was only the Dow’s second drop in 12 days. Broader stock indexes also slid.
Treasury prices tumbled after a government debt auction drew only modest demand for a second straight day. That raised concerns that the government will have to pay higher interest rates to attract buyers for its debt. Washington has been issuing record amounts of debt to help revive the economy.
The drop in stocks came after Fitch Ratings lowered Portugal’s credit rating. The agency said the country’s recovery will be slower than others that use the euro. Fitch contends that could hurt Portugal’s ability to repay its debt.
Deficit problems in Europe have been one of the few drags on stocks this year. Rising debt in Greece, Portugal and other nations that use the euro have investors worried that troubles there could upend a nascent global recovery.
The dollar rose to a 10-month high against the euro. The stronger dollar makes commodities more expensive to foreign buyers. That cuts into demand.
Stocks also lost ground after the Commerce Department said that new home sales unexpectedly fell to a record low last month.
The stock market has been carving steady gains for more than a month as reports signal a slow strengthening of the economy. The modest signs of improvement have kept traders from placing big bets on a rebound. Some analysts were already expecting a retreat because major stock indexes had touched new highs for the year.
Subodh Kumar, global investment strategist at Subodh Kumar & Assoc. in Toronto, said investors have been too quick to look past risks still facing the economy. He said stocks have gone up too much.
“The markets, particularly stocks, have been looking at one aspect only and that is recovery,” he said.
The Dow fell 52.68, or 0.5 percent, to 10,836.15, a day after closing at its highest level since September 2008. It was the biggest point and percentage drop since Feb. 25.
The Standard & Poor’s 500 index dropped 6.45, or 0.6 percent, to 1,167.72. The index also closed Tuesday at its highest level in nearly 18 months.
The Nasdaq composite index fell 16.48, or 0.7 percent, to 2,398.76. On Tuesday, the index reached its best level in 19 months.
Bond prices dropped after an auction of $42 billion in five-year Treasury notes drew weak demand. The yield on the five-year note, which moves opposite price, rose to 2.59 percent from 2.42 percent.
The yield on the benchmark 10-year note rose to 3.86 percent from 3.69 percent late Tuesday.
An auction Tuesday of $44 billion in two-year notes also saw a drop in demand.
The drop in the stock market wasn’t as steep as in Treasurys.
Robert Froehlich, senior managing director at Hartford Financial Services, said the slide in stocks wasn’t worse because the financial problems in Portugal weren’t unexpected. Analysts have said that the country has been carrying too much debt.
Froehlich also said the recent slow climb in the market signals that investors don’t have strong opinions about which way the market is going.
“What’s the next move of the Dow – 12,000 or 8,000? No one is willing to make that big bet,” he said.
In economic news, the drop in new home sales brought another reminder of the troubles in the housing market. New home sales fell 2.2 percent to a seasonally adjusted annual sales pace of 308,000 in February as bad weather helped kept buyers out of the market.
Economists polled by Thomson Reuters had forecast sales would rise to 320,000.
The report came a day after the National Association of Realtors said sales of existing homes fell last month. The drop wasn’t as steep as forecast, however.
A recovery in housing has been uneven. Reports that beat even modest expectations have helped stocks. On Tuesday, the Dow rose nearly 103 points, or 1 percent, after the housing report.
Investors brushed off a report that orders at factories for big-ticket manufactured goods grew last month. Unlike the housing market, the manufacturing industry has seen steadier improvement in recent months.
Durable goods orders, which are items expected to last at least three years, rose 0.5 percent last month. That was below the 0.7 percent growth analysts forecast. However, it was the third straight month orders rose.
Excluding often-volatile orders for aircraft and other transportation equipment, the increase was 0.9 percent. Economists had forecast an increase of 0.6 percent.
The government’s weekly jobless claims report could shape trading Thursday. High unemployment is seen as the biggest obstacle facing the economy.
In corporate news, homebuilder Lennar Corp. said its fiscal first-quarter loss narrowed. The company also said the housing market is stabilizing and that it expects to return to profitability later this year. Its shares rose 63 cents, or 3.7 percent, to $17.69.
Two stocks fell for every one that rose on the New York Stock Exchange, where consolidated volume came to 4.8 billion shares, compared with 4.5 billion Tuesday.
Crude oil fell $1.30 to $80.61 per barrel on the New York Mercantile Exchange. Gold fell.
The Russell 2000 index of smaller companies fell 6.62, or 1 percent, to 683.68.
Britain’s FTSE 100 rose 0.1 percent, Germany’s DAX index rose 0.4 percent, and France’s CAC-40 fell 0.1 percent. Japan’s Nikkei stock average rose 0.4 percent.