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Investors were taken by surprise after minutes from the Federal Reserve’s latest meeting implied the Central Bank may stop or slow its bond buying program earlier than expected. This development dampened market sentiment and stocks suffered their biggest loss this year till date. Meanwhile, Housing Starts declined for the month of January. Housing stocks were badly hit following poor earnings from one of a major company and disappointing Housing Starts data.
The Dow Jones Industrial Average (DJI) decreased 0.8% to close the day at 13,927.54. The S&P 500 decreased 1.2% to finish yesterday’s trading session at 1,511.95. The tech-laden Nasdaq Composite Index lost 1.5% to end at 3,164.41. The fear-gauge CBOE Volatility Index (VIX) increased 19.3% to settle at 14.68. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 7.5 billion shares, well above the daily average of 6.45 billion shares in 2012. Declining stocks outnumbered the advancing stocks. For the 24% that advanced, 74% declined.
Benchmarks began yesterday’s trading session on a flat note and most stocks were oscillating between small gains and losses. But benchmarks slipped into negative territory after a few major companies reported dismal results and the Federal Reserve released its latest minutes. The S&P 500 posted its biggest one day decline since November 14, 2012.
The Federal Reserve expressed concerns over the purchase of Treasury and Mortgage bonds worth $85 billion every month. This program was originally initiated to limit interest rates and promote borrowing and spending. However, the minutes of the meeting from January 29-30 released yesterday, reflected concerns about this issue. Fed policy makers believe buying bonds worth $85 billion would increase inflation and create disturbance in the financial markets.
“Several participants” also added that the pace of buying bonds every month should vary according to the then prevailing economy and cost of purchases. The Fed also said that it could stop or slow the current buying program owing to these concerns. Earlier, the Central Bank had said it will continue purchasing bonds until the job scenario improves and unemployment falls below 6.5%.
According to the U.S. Department of Commerce, Housing Starts were at 890,000 for the month of January, well below the consensus estimate of 922,000. However, this figure is 23.6% above the year-ago figure of 720,000. Building permits increased 1.8% to 925,000 for January, from the December figure of 909,000, below the consensus estimate of 934,000. This figure is 35.2% above the year-ago figure of 684,000.
On the earnings front, shares of housing major, Toll Brothers Inc (NYSE:TOL) declined about 9% after it posted results for first quarter 2013 below the Street’s estimates. Profits of the company were adversely affected because of high costs and low selling prices. New orders for the company increased 49%, but selling prices of homes decreased 7.5%. Shares of Garmin Ltd. (NASDAQ:GRMN) plunged 9.4% after the company reported quarterly results which came in below the Street’s estimates.
Poor results from Toll Brothers and below than expected Housing Starts data, pushed housing stocks into negative territory. The SPDR S&P Homebuilders (XHB) decreased 4.5%. Stocks such as PulteGroup, Inc. (NYSE:PHM), D.R. Horton, Inc. (NYSE:DHI), KB Home (NYSE:KBH), M.D.C. Holdings, Inc. (NYSE:MDC) and The Ryland Group, Inc. (NYSE:RYL) lost 6.8%, 5.8%, 7.5%, 7.9% and 8.3%, respectively.
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