Stock Market News for September 21, 2011

On Tuesday, benchmarks lost most of their gains to end almost flat as investors awaited anxiously for a resolution to the Greece crisis and the Federal Reserve’s next move to boost the flagging economy. A downgrade of Italy’s credit rating coupled with a possible delay in a resolution to the Greek-debt crisis caused jitters and dissuaded investors from taking long positions.

The Dow Jones Industrial Average (DJIA) edged up 7 points or 0.1% to finish the day at 11,408.66. The Standard & Poor 500 (S&P 500) declined 0.2% to close the day at 1,202.09. The Nasdaq Composite Index dropped 0.9% and settled at 2,590.24. The fear-gauge CBOE Volatility Index (VIX) traded slightly lower than 33. The session witnessed the lowest volumes for the markets since August. Consolidated volumes on the New York Stock Exchange, Amex and Nasdaq, were at 7.07 billion shares, compared with the daily average of 7.9 billion. On the NYSE, for every stock that moved up, a couple traded in the negative zone.

On Monday, stocks had recovered almost half the day’s losses in the final hours of trading, boosted by hopes of a resolution to the Greek debt crisis. Greek Finance Minister Evangelos Venizelos participated in a two-and-half-hour conference call with the ‘Troika’, consisting of the European Union, European Central Bank and the International Monetary Fund. Yesterday, markets pared their gains after media reports stated that the Troika will return to Athens only in October

Adding to prevailing fears, a Wall Street Journal article said talks with the Troika might fail. Reportedly, the Troika will make a return to Athens in October and will review the financial situation in Greece. Meanwhile, Greece provided assurances that it was making every effort to further reduce its spending. The nation has to fulfill the Troika’s strict budgetary conditions in order to qualify for the bailout fund. After Monday’s meeting, the Greek finance minister had said that the conference call was "productive and substantive". Officials from the Greece’ finance ministry said Greece and international money lenders were closing in on an agreement to provide the debt-stricken nation with the necessary funds. If the Troika delays the bailout fund, then Greece might find itself in a serious cash crunch and might be unable to pay its debt.

More disappointing news from the European continent was in store. Standard and Poor's downgraded Italy’s credit rating by a notch from A+/A-1+ to A/A-1. S&P said: "We believe the reduced pace of Italy's economic activity to date will make the government's revised fiscal targets difficult to achieve," and added: "Furthermore, what we view as the Italian government's tentative policy response to recent market pressures suggests continuing future political uncertainty about the means of addressing Italy's economic challenges". The downgrade of the European continent’s third-largest economy immediately sparked off incremental fears, while the opposition called for Prime Minister Silvio Berlusconi’s resignation.

Initial gains in the markets were built on hopes of a favorable outcome to the Federal Open Market Committee’s two-day meeting which began yesterday. It is largely believed that the central bank will come up with a new set of measures, termed as ‘Operation Twist’, wherein the Fed will sell shorter-term notes and purchase longer-term Treasury bonds. The central bank is expected to intervene in the bond markets and reduce long-term interest rates to even lower levels, which are already hovering near historic lows.

Housing data came in mixed yesterday, as the U.S. Department of Housing and Urban Development report showed a decline in housing starts, while building permits showed an uptrend. The Commerce Department reported privately-owned housing starts to have fallen 5% month-on-month in August to a seasonally adjusted annual rate of 571 000. They were also 5.8% below the August 2010 rate of 606,000. As for building reports, the Commerce Department reported: “Privately-owned housing units authorized by building permits in August were at a seasonally adjusted annual rate of 620,000. This is 3.2 percent (±1.0%) above the revised July rate of 601,000 and is 7.8 percent (±1.4%) above the August 2010 estimate of 575,000.” However, since investors focused on European developments and awaited the Fed’s decisions, this data had little impact on benchmarks.

Despite the report, housing sector shares like KB Home (NYSE:KBH - Analyst Report), PulteGroup, Inc. (NYSE:PHM - Analyst Report), DR Horton Inc. (NYSE:DHI - Analyst Report), Toll Brothers Inc. (NYSE:TOL - Snapshot Report) and MDC Holdings Inc. (NYSE:MDC - Snapshot Report) gained 5.6%, 3.0%, 2.3%, 1.0% and 2.9%, respectively. However, other shares from the sector like Lennar Corp. (NYSE:LEN - Analyst Report), Beazer Homes USA Inc. (NYSE:BZH - Snapshot Report), Comstock Homebuilding Companies Inc. (NASDAQ:CHCI - Snapshot Report) and M/I Homes, Inc. (NYSE:MHO - Snapshot Report) dropped 2.6%, 3.9%, 6.5% and 2.9%, respectively.

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Read the full analyst report on LEN

Read the full analyst report on BZH

Read the full analyst report on CHCI

Read the full analyst report on MHO