The Dow Jones Industrial Average, which had hit a new record high of 13,624, the NASDAQ, and the S & P 500 indices were all down as lunch hour approached in trading on Thursday morning. All three had begun the morning session up, reports the Associated Press.
The market had initially soared, with the Dow gaining 100 points, as the Commerce Department reported that U.S. new home sales had risen by 16% in the month of April-the biggest surge in new home sales in 14 years-destroying analysts’ expectations, as reported by Reuters and other news agencies.
“While other housing data remains weak, today’s housing report is clearly encouraging,” Michael Sheldon, chief market strategist at Spencer Clarke, told MarketWatch.
However, new home sales were given a lift by plunging real estate prices. The average price of a new home dropped sharply, nearly 11% from what it was one year previous. “This is a blockbuster number but the beneath the curtain, we still see signs of weakness. [The steep price drop] means that builders are basically putting a fire sale on inventory. What will be most important is whether there is a divergence between existing and new home sales tomorrow as existing home owners may be more price sensitivity and in less of an urgency to sell,” Kathy Lien, chief strategist at DailyFX.com, told MarketWatch.
The news of the steep decline in new home prices caused investors to pull back from their early enthusiasm, and the stock market rally changed into a falling stock market later in the morning. Investors did cling to hope in a robust U.S. economy with the Labor Department’s statistics on a continuing low level of unemployment, however.
Investors also took courage from the 0.6% rise in demand for American made durable goods, including a lot of metal products, in the month of April.
The rallying market had closed lower on Wednesday after former Federal Reserve Chairman Alan Greenspan, considered an economic prophet by many an investor, said that the powerful Chinese economy is probably headed for a “dramatic correction”, as the Shanghai Index fell 0.5% in just one day.
“While this did not derail the rally, the major indices did close in the red after they all had made new intra-day highs. That makes it a minor reversal day to the downside for the broad range of indices. It would require a follow-through day to the downside [to confirm a real trend reversal]”, Marc Pado, market strategist at Cantor Fitzgerald, told MarketWatch.