The Inevitable Fall

On 11.19.09, In Stock Market

Two factors bought the stock market down on Wednesday. Firstly the unexpected drop in new home construction which shook investor confidence and then not so great profit outlooks in technology sector.

The Dow Jones industrial average declined by 11 points (0.1%) to end at 10,426.3 points. The S&P 500 (SPX) declined by less than one point to close at 1,109.8 points. The Nasdaq composite which is mainly technology shares driven declined by 10 point (0.5%) to end at 2,193.1 points .

Sector wise technology and utility stocks registered the maximum decline of 0.5% each. Other sectors which declined included Industrials (decline of 0.4%), Energy (decline of 0.3%), Consumer Discretionary (decline of 0.3%) and Materials (decline of 0.1%). Sectors that gained included financials (gain of 0.9%), health care (gain of 0.4%) and Telecom (gain of 0.2%). Consumer staples closed the day at the same level as Tuesday.

On Wednesday stocks opened at a lower level and for most of the day continued to trade at a lower level. The decline was mainly on account of government data showing the decline in construction of new single family homes to a six month low level in October. As per government data housing starts declined by more than 10% to an annual rate of 529,000 in October which is the lowest level in six months. This is against an expectation of 600,000 housing starts and 592,000 in September. Also the annual rate of housing permits declined by 4% to 552,000 in October from 575,000 in September. The decline registered in spite of government support made investors nervous about the growth prospects of the economy.

Among other economic data released the Consumer Price Index which is a key measure of inflation increased by 0.3% in October as against forecasted increase of 0.2%.Excluding food and energy prices CPI increased by 0.2% in October as against a forecast of 0.1% increase.

Technology stocks also took a beating after some big players in the sector declared not so great earnings outlook for the fourth quarter. Tech giant Hewlett-Packard and Microsoft were among the big decliners in the sector.

The decline in dollar against the rival currencies also did not help to lift the markets. Lately movements in stock market have been determined mainly by movements in dollar with a decline in dollar increasing appetite for risky assets and pushing the markets up. However on Wednesday even this did not work as investors were not keen on pushing up the markets which already has scaled new highs unless there are further signs of economic recovery.