Stocks Fall for Second Day
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American stocks declined for a second day after Merrill Lynch & Co. analysts said tighter credit markets will hurt earnings at banks and home prices fell by a record.
Citigroup Inc., Lehman Brothers Holdings Inc., and Bear Stearns Cos. retreated after Merrill lowered its recommendation on the shares and cut its profit estimates for this year and next. Lennar Corp. and D.R. Horton Inc. led homebuilder stocks to the lowest since May 2003.
The Standard & Poor’s 500 Index decreased 15.51, or 1.1%, to 1,451.28 as of 11:06 a.m. in New York. The Dow Jones Industrial Average lost 105.43, or 0.8%, to 13,216.7. The Nasdaq Composite Index slipped 30.33, or 1.2%, to 2,530.92.
Financial stocks have posted the biggest drop among 10 industry groups in the S&P 500 this year amid concern that higher borrowing costs sparked by subprime mortgage defaults will erode earnings from trading and debt underwriting. Reports today showed home values declined 3.2% in the second quarter from the same period a year ago, while consumer confidence dropped by the most since 2005 in August.
“Our concern when we look out is with the U.S. consumer,” a senior managing director at First American Funds in Minneapolis, David Chalupnik, said. “Are the housing issues that we’re seeing going to finally depress the U.S. consumer? That’s the risk that we see.”
Stocks in Europe and Asia declined, led by financial companies on concern the subprime mortgage rout is spreading and will erode global economic growth. The Morgan Stanley Capital International World Index slipped 0.2% to 1,545.06.
American stocks retreated yesterday after a report showed the glut of unsold homes rose to a 16-year high. Financial stocks contributed the most to the drop in the S&P 500 after Lehman said there may be “extraordinary weakness” in the market for loans held by Countrywide Financial Corp., the biggest American home lender.
The S&P/Case-Shiller report also showed that prices in June in 20 American metropolitan areas fell 3.5% from a year before. The decline compares with a 2.9% year-over-year drop in May. The quarterly national index goes back to 1987.
Consumer confidence fell in August by the most since just after Hurricane Katrina two years ago. The New York-based Conference Board’s index declined to 105 from 111.9 in July Economists surveyed by Bloomberg News forecast the index would slip to 104 from an originally reported July reading of 112.6.
