Investors digested updates Tuesday on U.S. gross domestic product and new home sales
U.S. stocks closed lower in thin trading Tuesday, erasing earlier gains as the market searched for direction in slow, pre-holiday trading.
A fresh batch of weak economic data appears to be already factored into the market. The government said Tuesday the U.S. economy contracted at a 0.5% annual rate in the third quarter, unchanged from a preliminary estimate. Other reports released Tuesday showed a 2.9% plunge in November new home sales, and a 8.6% slide in November existing home sales.
On a brighter note, the University of Michigan's consumer sentiment index rose to 60.1 in December from 55.3 in November, and the ICSC-Goldman weekly chain store sales index rose 2.6%.
Bonds edged higher. The dollar index flattened. Gold and crude oil futures fell.
On Tuesday, the 30-stock Dow Jones industrial average finished lower by 100.28 points, or 1.18%, at 8,419.49. The broader S&P 500 index shed 8.48 points, or 0.97%, to 863.15. The tech-heavy Nasdaq composite index was down 10.81 points, or 0.71%, at 1,521.54.
On the New York Stock Exchange, 19 stocks were lower in price for every 12 that were higher. The ratio on the Nasdaq was 18-10 negative.
Tuesday's economic data, along with the upcoming Christmas holiday on Thursday, are giving investors little reason to take on any significant new positions in the market, says S&P MarketScope.
The market will close early on Wednesday at 1:00 p.m. ET, and it will be closed all day Thursday for the Christmas Day holiday.
Stocks in Europe finished mixed, with London stocks up 0.16%, Paris down 0.73%, and Frankfurt lower by 0.21%. In Asia, Tokyo stocks were closed for a holiday, while Hong Kong fell 2.75% and Shanghai dropped 4.55%.
In economic news Tuesday, U.S. new home sales fell 2.9% to a 407,000 unit annual pace in November from a downwardly revised 419,000 in October (433,000 previously) and 442,000 in September (previously 457,000) for a net 35,000 downward revision. Regionally, sales were weaker in all three regions except the West. The months' supply of homes fell to 11.5 vs. 11.8 in October (revised from 11.1 previously). Homes on the market fell to 374,000 from an upwardly revised 402,000 (381,000 previously). The median sales price rose to $220,400 from $214,600 (revised from $218,000). That's down 11.5% year-over-year, compared to -8.4% previously.
U.S. existing home sales fell 8.6% to a 4.49 million pace in November, vs. a downwardly revised 4.91 million in October (4.98 million previously). Single family sales fell 8.0%. Condo/coop sales were down 13.0%. The months' supply of homes rose to 11.2 from 10.3. The median sales price declined to $181,300 from $186,500 (revised from $183,300). That's down 13.2% year-over-year, compared to -11.3% initially recorded in October.
U.S. consumer sentiment improved to 60.1 in the final December print of the Reuters/University of Michigan survey, vs. 59.1 in the preliminary (and 55.3 for November). The future index paced the gain, rising to 54.0 compared to the preliminary 52.4 (53.9 November). The current conditions index inched up to 69.5 from the preliminary December 69.4 (57.5 in November). "It looks as though the drop in energy prices is helping counter the negative news on the economy," says Action Economics.
The Bureau of Economic Analysis reported that real gross domestic product fell 0.5% in the third quarter, unchanged from last month's preliminary estimate. The data were in line with the market consensus. Revisions to the components were slight. Both exports and imports were revised slightly upward, leaving little net impact. Nonresidential investment was revised upward, offset by downward revisions to residential construction and inventories. Overall, the changes have little impact on our fourth-quarter forecast of a decline near 6%.
The auto sector was again in focus Tuesday. S&P Ratings Services late Monday lowered its issue-level ratings on the unsecured debt of General Motors (GM) and General Motors of Canada Ltd. to C from CC. At the same time, S&P Ratings revised its recovery rating on GM's debt to 6 from 4, indicating that lenders can expect to receive negligible (0 to 10%) recovery in the event of a payment default. S&P Ratings said the rating actions reflect GM's planned receipt of up to $13.4 billion of U.S. government loans, plus another approximately $2.5 billion from the Canadian and Ontario governments. In addition, Germany and Sweden have signaled that they may make loans to GM units in those countries, which would further diminish the value to unsecured creditors of the equity in foreign subsidiaries, said S&P Ratings.
Among other companies in the news Tuesday, Red Hat Inc. (RHT) posted third quarter GAAP EPS of 12 cents, vs. 10 cents one year earlier, on a 22% revenue rise.
Tibco Software (TIBX) posted fourth-quarter GAAP EPS of 18 cents, vs. 14 cents one year earlier, on flat revenue.
CIT Group (CIT) says it received preliminary approval from the Treasury Dept. to participate in its Capital Purchase Program, part of the Troubled Assets Relief Program (TARP). CIT said Treasury has preliminarily approved an investment of approximately $2.33 billion in CIT's perpetual preferred stock and related warrants under terms of the program. The company also said the Commissioner of the Utah Dept. of Financial Institutions also approved the application of CIT Bank to convert from a Utah-chartered industrial bank to a Utah-chartered bank.
Old Dominion Freight Line (ODFL) announced that, due to difficult economic conditions, it is revising its 2008 EPS guidance to a range of $1.73-$1.76, vs. its earlier forecast of $1.90-$1.95.
In other U.S. markets Tuesday, Treasuries strengthened in the afternoon, recovering from recent weakness. Weak November home sales data contributed to a bullish backdrop for bonds, while third-quarter GDP went unrevised at -0.5%. The 10-year note was up 03/32 at 114-02/32 for a yield of 2.17%. The 30-year bond was up 29/32 at 137-00/32 for a yield of 2.63%.
The U.S. dollar index was flat at 81.21.
West Texas Intermediate crude oil futures for February delivery were down $0.93 at $38.98 at 3:00 p.m. ET Tuesday, extending losses from Monday
amid renewed concerns about diminishing demand for energy.
Gold futures for February delivery were down $7.30 to $839.90 per ounce at 3:25 p.m. ET Tuesday. Trading was thin, and the market was seeing a bit of profit taking going into the
holiday, according to LaSalle Futures' Matt Zeman. He also notes that continued weakness in energy prices, despite OPEC production cuts, eases inflationary concern, and therefore eases gold's appeal as an alternative investment.