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Categorized | Equities

House price fall triggers Wall St reversal

Posted on January 31, 2012

US stocks defied European trends for a second consecutive day, falling on poor US economic data after global indices had rallied on enthusiasm for a eurozone fiscal discipline pact brokered by Germany.

Shares had opened higher on the eurozone deal, climbing as much as 0.6 per cent to 1,320.55, putting the index back into bull market territory. Technicians enthused about a so-called “golden cross”, as the S&P 500’s 50-day moving average broke above its 200-day moving average.

According to Schaeffers Investment Research, the S&P 500 has delivered positive returns in the calendar year following all but one of the 17 golden crosses since 1975, with a median gain of 13 per cent.

“Although it is usually well-hyped when it happens, you do have to respect the fact that a golden cross really is a strong intermediate-term signal,” said Ryan Detrick, chief technical strategist at Schaeffers.

At 10am stocks reversed course as data showing an unexpected decline in consumer confidence added to earlier gloom around a further fall in US house prices.

Homebuilders suffered with PulteGroup
off 2.4 per cent at $7.45, Lennar
down 2.9 per cent to $21.49 and DR Horton
falling 1.1 per cent to $13.92. All three stocks remain up at least 9 per cent for the year and have rallied more than 50 per cent from October lows.

Some analysts pointed out that weak housing data may encourage continued Federal Reserve stimulus. “Recent housing data has once again disappointed to the downside,” said Gina Martin Adams, a senior analyst at Wells Fargo Securities.

Stocks pared losses through the rest of the session, but the S&P 500 ended off 0.1 per cent at 1,312.4, up 4.4 per cent for the month for its best January since 1997.

Earnings were responsible for most of the big movers. Shares in RadioShack
plunged 29.8 per cent to $7.18 after the company suspended share repurchases and warned that fourth-quarter earnings would come in below expectations. Heavy discounting over the holiday sales period took its toll on margins at the electronics retailer, and the company’s market capitalisation has now fallen by more than 60 per cent since the start of 2011.

RadioShack rival Best Buy
fell 5.6 per cent to $23.95 for the worst performance in the S&P 500.

The Dow Jones Industrial Average was off 0.2 per cent at 12,632.91, as ExxonMobil
, one of the most influential stocks in the price-weighted index, fell 2.1 per cent to $83.74.

Exxon’s fourth-quarter earnings rose 2 per cent, but margins at its US refining business slumped. Profit at its US “downstream” business, which includes marketing as well as refining, slid from $226m to just $30m.

Exxon’s fall left Apple
once again as the largest US company by market capitalisation, after its shares hit a new high of $458.24, before finishing the day at $456.48, a gain of 0.8 per cent.

That helped the Nasdaq to a gain of 0.1 per cent for the day, the only one of the three big US indices to record gains on Tuesday, as it closed at 2,813.84.

However shares in Amazon
, one of the other heavily weighted stocks in the Nasdaq, fell almost 10 per cent in after-hours trading as fourth-quarter earnings data missed expectations.

Eli Lilly
climbed 1.3 per cent to $39.74 despite seeing fourth-quarter profit fall by about 25 per cent, as sales of its Zyprexa antipsychotic drug were hit by new generic competition. The company also said clinical trials of its experimental Alzheimer’s treatment were not yet complete.

US Steel
climbed 5.1 per cent to $30.19, more than rebounding from Monday’s sell-off, which had followed the announcement of a lossmaking sale of its Serbian unit.

Although US Steel declared a fourth-quarter loss, it was smaller than in 2010, and it forecast “significantly improved” results for the current quarter on firmer steel prices.

fell 4.2 per cent to $120.20, as the rally, which has seen shares in the video streaming website climb 80 per cent this year, paused for breath.

Sears Holdings
was once again hit by reports that CIT, a key provider of finance in the retail sector, would stop extending credit to Sears suppliers to fund deliveries to the department store chain. Its shares fell 4.3 per cent to $42.15.

Banks bucked the falling market, helped by improving eurozone sentiment. Bank of America
climbed 0.9 per cent to $7.13 and Morgan Stanley
was up 2.5 per cent to $18.65.