The major domestic equity indexes closed out the trading day in negative territory on Wednesday, confirming a correction for the Nasdaq and erasing the Dow Jones Industrial Average and the S&P 500 indexes’ gains for the year.
Contributing to the negative atmosphere were disappointing forecasts from chipmakers and weak home sales data, both of which fueled jitters over future growth of both the economy and corporate earnings.
The Nasdaq ended the trading day down 12.4 percent from its Aug. 29 record closing high, falling 4.4 percent for the day in its largest one-day percentage decline since Aug. 18, 2011.
Sales of new single-family homes fell to a two-year low in September, the latest sign that rising mortgage rates and higher prices were reducing housing demand.
Adding to weaker sentiment in late trading, the Federal Reserve said in its latest report on the economy indicated that factories have raised their prices because of tariffs.
Stocks have been punished this month by a range of worries, from rising borrowing costs and bond yields to Italy’s budget and the upcoming congressional elections in less than two weeks.
The Cboe Volatility Index rose 4.52 points to close at 25.23, its highest close since Feb. 12.
On the earnings front, Texas Instruments and STMicroelectronics warned of slowing demand. They followed in the footsteps of previous disappointing forecasts this past Tuesday from Caterpillar and 3M.
Texas Instruments fell 8.5 percent, helping pull the Philadelphia Semiconductor index down 6.6 percent in its largest daily percentage decline since October 2014. Intel, due to report earnings later this week, was down 4.7 percent. The beaten-down S&P technology sector retreated another 4.4 percent.
While third quarter earnings growth estimates are 22.4 percent, up from 21.6 percent in the last 10 days, weaker forecasts have pulled down fourth quarter growth estimates to 19.5 percent from 20 percent, according to I/B/E/S.
Approximately 9.6 billion shares changed hands on the major domestic equity exchanges, as compared to the 8 billion share daily average for the past 20 trading days.
New Home Sales Fall
New single-family home sales hit a two-year low in September and data for the prior three months was revised lower, the latest indications that rising mortgage rates and higher prices were undercutting the housing market.
According to a report released by the Commerce Department on Wednesday morning, new home sales fell 5.5 percent to a seasonally adjusted annual rate of 553,000 units last month. That was the lowest level since December 2016. August’s sales pace was revised down to 585,000 units from the previously reported 629,000 units. June and July sales rates were also revised lower. New home sales have now declined for four straight months.
New home sales are drawn from permits and tend to be volatile on a month-to-month basis. They declined 13.2 percent from a year ago.
Hurricane Florence likely weighed on new home sales in the South, which decreased 1.5 percent in September to their lowest level since August 2017. The South accounts for the bulk of transactions and covers North and South Carolina, which were ravished mid-September. Sales in the South have now decreased for four straight months.
Sales fell12.0 percent in the West to a two-year low and were down 40.6 percent in the Northeast hitting their lowest level since April 2015. They rose 6.9 percent in the Midwest.
The weak numbers came on the heels of reports last week showing declines in homebuilding, permits and housing completions in September. In addition, sales of previously owned homes hit a near three-year low in September.
A survey last week showed confidence among single-family homebuilders rose in October, but that housing affordability has become a challenge due to ongoing price and interest rate increases.
The housing market has underperformed a robust economy and analysts blame the sluggishness on the more expensive home loans and higher house prices, which have outstripped wage growth, making home purchasing unaffordable for some first-time buyers.
The 30-year fixed mortgage rate has increased more than 80 basis points this year to an average of 4.85 percent, according to data from mortgage finance agency Freddie Mac. House prices rose 5.9 percent in July from a year ago.
While wage growth has picked up in recent months as the labor market tightens, the annual increase remains below 3 percent. Mortgage rates are likely to rise further, with the Federal Reserve expected to raise interest rates in December for the fourth time this year.
Residential investment contracted in the first half of the year and is expected to have declined further in the third quarter. The government will publish its snapshot of third-quarter gross domestic product on Friday.
A separate report on Wednesday from the Mortgage Bankers Association showed applications for loans to purchase a home rose 2 percent last week. Applications, however, remained 4 percent lower than two weeks ago.
The median new house price fell 3.5 percent to $320,000 in September from a year ago. There were 327,000 new homes on the market in September, the most since January 2009 and up 2.8 percent from August. Supply is, however, just over half of what it was at the peak of the housing market boom in 2006.
At September’s sales pace it would take 7.1 months to clear the supply of houses on the market, the most since March 2011, compared with 6.5 months in August.
Nearly two-thirds of the houses sold last month were either under construction or yet to be built.