Dow now at 10,396, a drop of 40 points.
NEW YORK (AP) — Investors turned cautious Wednesday as an
unexpected drop in home construction and disappointing forecasts
from technology companies raised concerns about the pace of the
economy’s recovery.
The modest drop came a day after major stock indicators closed at
13-month highs, including the Dow Jones industrial average, which
has risen 9 of the past 10 days. Analysts said the quick ascent
means the market is due for a rest.
John Brady, senior vice president of global interest rate products
at MF Global in Chicago, said as the end of the year approaches
traders are looking foremost at preserving the gains amassed in an
eight-month rally that has given the benchmark Standard & Poor’s
500 index a gain of 22.9 percent for the year.
“It’s a bit of a consolidation trade,” he said. “Traders are scared
to go out too far out on a limb here and do anything too risky late
in the year.”
The day’s economic news added to investors’ caution. The Commerce
Department said construction of homes and apartments fell 10.6
percent in October to an annual rate of 529,000, well below the
pace of 600,000 that economists polled by Thomson Reuters
expected.
Joe Heider, president of Dawson Wealth Management in Cleveland,
said the disappointing results “will push against what was a very
bullish attitude on Wall Street.”
Heider said investors were trying to determine whether the slowdown
signaled weakness in the economy or a reluctance among builders to
break ground when the future of a homebuyers’ tax credit was
uncertain. Lawmakers extended a tax credit for first-time
homebuyers that was set to end this month through June.
Building permits, a key indication for future activity, slid 4
percent to an annual rate of 552,000, also below the rate of
580,000 that analysts had forecast.
Technology shares fell after BMO Capital Markets said Blackberry
maker Research in Motion Ltd. faces increased competition as
consumers opt for less expensive phones. Meanwhile, forecasts from
software makers Autodesk Inc. and Salesforce.com fell short of
analysts expectations.
In midafternoon trading, the Dow fell 42.40, or 0.4 percent, to
10,395.02. The broader S&P 500 index fell 3.19, or 0.3 percent,
to 1,107.13, while the technology-heavy Nasdaq composite index fell
16.69, or 0.8 percent, to 2,187.09.
There was little reaction to a report that found inflation at the
retail level remained tame as rising unemployment, nervous
consumers and tight credit keep prices stable.
The Labor Department said consumer prices rose 0.3 percent in
October, slightly above the 0.2 percent economists expected. Core
inflation, which excludes volatile energy and food prices, rose 0.2
percent, compared to expectations of a 0.1 percent rise.
A report released Tuesday on prices at the wholesale level showed
rapid inflation was not imminent, supporting comments from Federal
Reserve Chairman Ben Bernanke’s earlier in the week.
Investors are looking for any signals of further improvement in the
economy to justify the gains that pulled major stock indexes off
12-year lows in March. Rising unemployment and tepid retail sales
have some analysts worried that investors might have been too quick
to place bets on a recovery.
President Barack Obama told Fox News on Wednesday that he is
worried that spending too much to help boost the economy could
invite a second recession because rising deficits could sap
confidence.
The dollar mostly fell against other major currencies, while gold
rose.
The drop in the dollar offered modest support to stocks. The market
often moves opposite the dollar as weakness in the currency boosts
demand for commodities. That, in turn, strengthens shares of energy
and materials companies as well as exporters whose goods become
cheaper to foreign buyers.
Bond prices fell, pushing yields higher. The yield on the benchmark
10-year Treasury note rose to 3.37 percent from 3.33 percent late
Tuesday.
Crude oil rose 25 cents to $79.39 per barrel on the New York
Mercantile Exchange.
Among tech stocks, Research in Motion fell $1.91, or 3.1 percent,
to $59.49, while Autodesk slid $2.94, or 10.9 percent, to $24.06.
Salesforce.com fell $2.07, or 3.2 percent, to $63.54.
Three stocks fell for every two that rose on the New York Stock
Exchange, where volume came to 630.3 million shares compared with
564.4 million shares traded at the same point Tuesday.
The Russell 2000 index of smaller companies fell 4.89, or 0.8
percent, to 597.45.
Overseas, Britain’s FTSE 100 fell 0.1 percent, Germany’s DAX index
gained 0.2 percent, and France’s CAC-40 slipped less than 0.1
percent. Japan’s Nikkei stock average fell 0.6 percent.
