Home builder fears drag on Wall Street
US stocks fell for a second straight session last night as investors ditched home builders and financials on fears that a federal home buyer tax credit might be phased out, while commodity shares succumbed to pressure from the higher US dollar.
Trading was choppy. Stocks initially started on firmer footing, with indexes up more than 1 per cent shortly after the open, but the bounce quickly faded as the US dollar rebounded and investors fretted about the financial sector’s prospects.
An economic research firm, ISI Group, said in note yesterday there could be an agreement to phase out the home buyer tax credit over 13 months, rather than expand it, as some had hoped.
JPMorgan, down 3.1 per cent at $43.82, was among the top drags, along with Bank of America, down 5.1 per cent at $15.40. The S&P financial index slipped 2.5 per cent, while the Dow Jones US home construction index declined 3.4 per cent.
“It’s a tough sell now to Congress to say we need another extension of the home buyer tax credit when supposedly we are out of the recession, according to economists, and housing is doing well again,” said Joe Saluzzi, co-manager of trading at Themis Trading. “If they are talking more of a phase-out than an extension, that certainly will hurt the market.”
Without the home buyer credit, investors worry that the struggling housing market might lose a crucial incentive that has spurred hopes of stabilization in recent months.
The Dow Jones industrial average .DJI dropped 104.22 points, or 1.05 per cent, to 9,867.96. The Standard & Poor’s 500 Index shed 12.65 points, or 1.17 per cent, to 1,066.95. The Nasdaq Composite Index fell 12.62 points, or 0.59 per cent, to 2,141.85.
The S&P 500 is now up 57.7 per cent from a 12-year closing low of March.
Financials also came under pressure from the news that Dutch banking, insurance and asset management company ING will split in two as part of a plan to pay back government bailout funds and return to its retail savings bank roots.
That plan might set a precedent for some of the US institutions that received federal government bailout funds, said Marc Pado, US market strategist at Cantor Fitzgerald.
“If the banks are going to focus on mainly repaying the government, they are not going to lend, they are going to cut back on mortgages, and make it even stricter to get a mortgage,” he said. “It’s the domino effect and that hurts the home builders.”