Wall Street succumbed to the combination of worse-than-expected economic data and high oil prices this week.
Data on existing housing sales and orders for durable goods came in below market expectations. This countered recent signs of strength in the US economy and heightened concern about the impact of high oil prices.
There was further poor economic news on Friday with a steeper-than-expected fall in the University of Michigan’s consumer sentiment index for August. The mood in the market was further damped by a warning from Alan Greenspan, the US Federal Reserve chairman, that the housing boom was an economic imbalance that could end badly for the economy.
Analysts said the impact of these negatives had been magnified by low trading volumes. “Unfortunately you can’t trust anything that happens in these last two weeks of August. The volume is so low that the market is vulnerable to any kind of news.” said Alexander Paris, market strategist at Barrington Research.
The three major US market indices all declined over the week with the Dow Jones Industrial Average decreasing 1.5 per cent, the S&P 500 falling 1.2 per cent and the Nasdaq Composite losing 0.7 per cent.
The three benchmarks also dropped during the day. At close, the Dow was 0.5 per cent lower at 10,397.29, the S&P 500 lost 0.6 per cent at 1,205.1 and the Nasdaq Composite slid 0.6 per cent to 2,120.77. Both the Nasdaq and the S&P were hovering at their lowest levels since mid-July.
Housebuilders fell overall despite one piece of positive economic news this week – a bigger-than-expected rise in new home sales. The S&P sector index dropped 1.2 per cent this week with Beazer Homes leading the declines, slipping 4.4 per cent to $58.56. Other home builders followed suit, with Pulte Homes dropping 1.7 per cent to $83.02 and KB Homes falling 2.6 per cent to $70.09.
Meanwhile, US companies continue to cite oil prices for bad earnings forecasts. This week, it was the restaurant chain Applebee’s International that trimmed 2005 earnings forecasts, blaming high oil prices for the report. The company fell 8.1 per cent to $22.36 over the week.
La-Z-Boy also blamed its troubles on the oil prices, saying that it expected second quarter sales to fall because surging prices would cut in to consumer spending. Shares dipped 3.8 per cent this week to $13.51.
Merck continued its decline, even after the company said it would settle lawsuits associated with its painkiller, Vioxx. Its shares slid another 0.4 per cent to $27.66 on Friday, making its total decline over the week 1.4 per cent.
Shares in Pixar, the digital studio behind Toy Story and Finding Nemo, fell on reports that the Securities and Exchange Commission had extended its inquiry into the Hollywood animation business and were investigating the company over its release of The Incredibles DVD. The shares were down 2.4 per cent to $41.99 in trading, and decreased 3.4 per cent over the week
Dreamworks, which faced a similar SEC probe over its DVD release for Shrek 2 dropped 0.2 per cent to $25.21 during trading on Friday.
Digital recorder maker TiVo fell this week after the company warned of “real challenges” and a wider than expected quarterly loss. The company will lose a partnership in October with DirecTV, which had provided a bulk of its subscribers. TiVo’s share price fell 13.6 per cent to $5.01.
Heating and air-conditioner maker York International was one of the biggest movers on the week, jumping 37 per cent to $57 after a takeover offer from Johnson Controls. Johnson Controls increased 5.7 per cent to $60.19. The report helped other companies in the ventilation sector, with Lennox International gaining 2.5 per cent to $24 and American Standard lifting 1.3 per cent to $44.64.
Some US technology stocks lifted in trading on Friday, with Omnivision Technologies up 9.5 per cent to $14.65 after the company forecast revenue to be as much as $120m – almost $17m above analysts’ expectations.
Hewlett-Packard was up slightly after the company said it would invest $150m in radio frequency identification technology. HP gained 0.4 per cent to $27.01
Computer software maker Novell gained 3.4 per cent to $6.38 in spite of the company reporting earnings below analysts’ expectations.
