Existing Home Sales Report Sparks Stock Market Plunge
The Dow Jones plunged 1.3 percent (134 points) today after a report on existing home sales renewed investors' fears about another economic slowdown. The S&P 500 dropped 1.5 percent (15 points) and the Nasdaq composite fell 1.7 percent (36 points). The existing home sales report fueled concern after economists had been talking about a double dip or even a Japan-style lost decade for the last two weeks. Investors appear to have received the news as confirmation of the likelihood of those fears and today flocked to the perceived safety of Treasury Bonds and the Japanese yen, which hit a 15-year high against the US dollar early in the day.
Stocks posting losses outnumbered losing stocks by a three to one ratio on both the New York Stock Exchange and the Nasdaq. Some of the day's biggest losers were from the health care, technology, and finance sectors, including Pfizer, Sony and GE, who each slid more than 2 percent Tuesday. Bank of America and Citigroup stocks each lost more than one percent. The biggest loser of all, however, was Medtronic, whose stock plummeted a staggering eleven percent after posting poor quarterly earnings and lowering annual earnings expectations. Stocks also finished lower Monday as talks about possible deals are lose momentum in response to the growing concerns about the US and global economies.
The existing home sales report was released this morning by the National Association of Realtors. It showed sales of existing homes in July fell by a staggering 28 percent from June, to a seasonally adjusted annual rate of 3.82 million units sold. It's the lowest the number has been in the eleven year history of the NAR report. Economists in a recent survey had forecast an annual rate of more than 4.7 million units sold. With the number coming in so slow, gloom-and-doom economists are arguing even more vehemently that we are headed for a double dip.
A report on new home sales will be released tomorrow, with surveyed economists expecting a light increase to an annual rate of 335,000 from 331,000 units in June. Meanwhile, another report released today showed that the differences between the 17 key Federal Reserve officials concerning how to handle the shaky economy peaked at a meeting earlier in July.
The dollar, in addition to reaching a 15-year low against the yen, also slipped against the Euro, while gaining against the British pound. Analysts say that with the yen so strong, and investors turning to Treasuries with yields as low as they are, risk-based trading appears to at a standstill. The yield on the benchmark 10 year Treasury bond almost reached a 17 month low today, falling from 2.6 percent late Monday to 2.5 percent. Treasury yields have remained at or near historic lows lately as investor concerns over the economy have driven them to safer investment vehicles like Treasuries and government-backed debt.