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Benchmarks lost out on the morning’s gains after disappointing home sales and initial claims data dragged the markets lower. As has been the case since late-December, cross-Atlantic tensions deter investors and economic data comes in to lift the sentiment. However, yesterday, while resumption of Greek debt negotiation talks spurred some optimism, economic reports dampened sentiment. Nonetheless, factory orders and a few corporate results emerged as positives for the day.

The Dow Jones Industrial Average (DJI) was down 0.2% and settled the day at 12,734.63. The Standard & Poor 500 lost 0.6% and closed yesterday’s trading session at 1,318.43. The Nasdaq Composite Index dropped 0.5% and finished lower at 2,805.28. The fear-gauge CBOE Volatility Index (VIX) rose 1.4% to settle at 18.57. On the New York Stock Exchange, NYSE Amex and Nasdaq, consolidated volumes were 7.9 billion shares. The advance and decline ratio was almost even on the NYSE, as for 48% of the stocks that moved up, 49% stocks were on the declining side. The remaining 3% were left unchanged.

On Wednesday, the Dow had posted its highest closing levels since May 2011. Yesterday, the blue-chip index neared its highest levels since the 2008 meltdown. But, the benchmark lost all the gains to finally settle in the red zone following mixed economic data.

Coming to the economic reports, housing and jobs data were primarily responsible for the markets’ downfall yesterday. Both of these are key sectors and play a huge role in shaping the broader economy. In a joint release by the U.S. Department of Housing and Urban Development, sales of new single-family houses were reported to have dropped 2.2% from November to 307,000 in December 2011. It was also 7.3% lower than December 2010 estimate of 331,000. The data also disappointed the expectations, as the consensus had predicted figures of 323, 000. This was the slowest year for builders since the department initiated tracking the housing reports

The data dragged the housing sector lower and also the broader markets. The PHLX Housing Sector (HGX) lost 1.3% and housing related stocks like Toll Brothers Inc. (NYSE:TOL), KB Home (NYSE:KBH), Lennar Corporation (NYSE:LEN), PulteGroup, Inc. (NYSE:PHM), D.R. Horton, Inc. (NYSE:DHI) and Beazer Homes USA, Inc. (NYSE:BZH) lost 5.0%, 0.8%, 2.9%, 2.4%, 2.6% and 0.9%, respectively.

Initial claims data also dampened sentiment after the US Department of Labor reported a 21,000 increase in advance figure for seasonally adjusted initial claims to 377,000, from the previous week's revised figure of 356,000, for the week ending January 21. The consensus estimate for the current period expected the initial claims to come in at 370, 000. Given the importance of the jobs and housing markets, disappointing reports from both of them was obviously going to hamper the mood.

In contrast, the U.S. Census Bureau reported a $6.2 billion or 3% increase in new orders for manufactured durable goods in December. Moreover, this was the fifth time that new orders increased out of the last six times, and was also better-than-expected, as consensus estimates had hoped for a 2.3% increase. Separately, The Conference Board reported that the index of leading indicators had hit its highest level since July, increasing 0.4% in December to 94.3.

This is a busy week of earnings and a few significant companies did not fail to surpass expectations yesterday. Quarterly results from Caterpillar, Inc. (NYSE:CAT), Time Warner Cable Inc (NYSE:TWC), 3M Company (NYSE:MMM), Lockheed Martin Corporation (NYSE:LMT) were encouraging and all of them beat the Street’s estimates. The companies’ shares rose, 2.1%, 7.8%, 1.3% and 0.9%, respectively.

In the opening session, the sentiment had also been boosted by news of resumption of Greek debt negotiation talks. Charles Dallara and Jean Lemierre were the negotiators representing the private creditors and they returned to Athens to resume talks on the debt swap, which would ultimately decide the fate of nation’s debt scenario. Earlier this week, euro-zone ministers had rejected the bond swap offer from private creditors, which sparked off tension in the financial world. If Greece fails to secure the next bailout package from international lenders, the nation will be unable to make its bond payments in March. The debt write-down deal is an absolute pre-requisite for Greece to receive the $168 billion bailout package from the European Union (EU) and the International Monetary Fund (IMF).

 

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