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
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
) 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:
) 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:
), D.R. Horton, Inc. (NYSE:
), KB Home (NYSE:
), M.D.C. Holdings, Inc. (NYSE:
) and The Ryland Group, Inc. (NYSE:
) lost 6.8%, 5.8%, 7.5%, 7.9% and 8.3%, respectively.
D R HORTON INC (DHI): Free Stock Analysis
GARMIN LTD (GRMN): Free Stock Analysis Report
KB HOME (KBH): Free Stock Analysis Report
MDC HLDGS (MDC): Free Stock Analysis Report
PULTE GROUP ONC (PHM): Free Stock Analysis
RYLAND GRP INC (RYL): Free Stock Analysis
TOLL BROTHERS (TOL): Free Stock Analysis
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