Hovnanian Falls on Record-Low Home Prices

Elena
28 Aug, 2007
New York City

U.S. stocks extended losses in late morning trading Tuesday, with the three major averages falling over 1%. A broker downgrade of giant investment banks renewed credit worries and concerns about economic growth. In addition, housing data showed that U.S. home prices in Q2 hit a 20-year low, sending housing stocks down. Hovnanian Enterprises slipped 3.6%, luxury homebuilder Toll Brothers dropped 3%, and D.R. Horton Inc. declined 3.6%.

[R]11:30AM Market averages dropped further lower, pressured by economic growth concerns. Housing stocks dropped[/R]

U.S. stocks extended losses in late morning trading Tuesday, with the three major averages falling over 1%. A broker downgrade of giant investment banks renewed credit worries and concerns about economic growth. As a result, financial stocks wre negatively affected, with the banking and brokerage sectors posting notable losses.

Citigroup ((C)) dropped 2.5%, Lehman Bros ((LEH)) fell 4.2% and Bear Stearns ((BSC)) declined 2% after Merrill Lynch cut its rating on the stocks to neutral from buy, citing the impact of debt market exposure. The broker forecast a sharp decline in earnings for Lehman Bros and Bear Stearns, while Citigroup is expected to see a smaller reduction in earnings owing to its diversified business.

In addition, Standard & Poor's housing index showed that U.S. home prices in Q2 hit a 20-year low, sending housing stocks down. Hovnanian Enterprises ((HOV)) slipped 3.6%, luxury homebuilder Toll Brothers ((TOL)) dropped 3%, and D.R. Horton Inc. ((DHI)) declined 3.6%.

Also in economic news, the Conference Board announced that its Consumer Confidence Index plunged to 105.0 in August from a revised reading of 111.9 in July. Analysts had expected a decline to 104.5. The FOMC is due to release the minutes of its Aug. 7 policy-setting meeting, expected to disclose clues about interest-rate cuts.

In late morning trading, the Dow fell 104.86, or 0.79%, at 13,217.27. The blue-chip average was led down by Acola Inc. ((AA)) and American Express Co. ((AXP)), falling 2.9% and 2.5%, respectively.

The Dow's minority advancing stocks include The Standard & Poor's 500 index was down 15.39, or 1.05%, at 1,451.40, and the Nasdaq composite index shed 30.21, or 1.18%, to 2,531.04. Bond prices rose, with the yield on the benchmark 10-year Treasury note falling to 4.55% from 4.57% on Monday.

[R]Consumer confidence dropped to 105 in August.[/R]

Tuesday morning, the Conference Board released its report on consumer confidence in the month of August, showing that its consumer confidence index fell roughly in line with economist estimates. The report showed that the consumer confidence index fell to 105.0 in August from a downwardly revised 111.9 in July.

Economists had expected the index to drop to 104.5 compared to the 112.6 originally reported for the previous month. The Conference Board also said that the present situation index fell to 130.3 in August from 138.3 in July, as those claiming conditions are ‘good’ decreased to 26.4 percent from 28.3 percent and those saying conditions are ‘bad’ increased to 16.3 percent from 14.5 percent.

The report also showed that the expectations index declined to 88.2 from 94.4 in the previous month, as those expecting business conditions to worsen in the next six months rose to 10.6 percent from 8.2 percent. The labor market outlook was also less favorable, with those expecting more jobs in the months ahead falling to 13.0 percent from 13.8, while those expecting fewer jobs increased to 15.3 percent from 14.9 percent.


[R]09:45AM Wall Street opened lower ahead of consumer-confidence data. Bank stocks weighed.[/R]

Wall Street declined at opening for a second day Tuesday, with investors nervous before a likely drop in consumer confidence and commentary from the Fed Reserve. The FOMC is expected to release the minutes of its Aug. 7 policy-setting meeting, which could give a clue about the central bank''s intentions before its next meeting in September.

At the last meeting, policymakers kept rates steady and pointed out that inflation remains its main concern despite credit-market turmoil and slowing housing market. The Fed has recently lowered the discount rate, the interest it charges banks.

Market sentiment was additionally hurt by losses in the shares of three giant investment banks. Citigroup ((C)) dropped 4.1%, Lehman Bros ((LEH)) fell 2.3% and Bear Stearns ((BSC)) declined 2.3% after Merrill Lynch cut its rating on the stocks to neutral from buy, citing the impact of debt market exposure. Street ((STT)) was another notable mover in the sector, falling 3.3% on a report it has exposure to $22 billion of asset-backed commercial paper conduits

In earnings-related news, Coronthian College ((COCO)) lost 0.4% after it reported a lower Q4 profit. Borders Group ((BGP)) is also expected to report a Q2 loss, due to stiff competition from rivals including Wal-Mart Stores and Amazon.com.

In the first hour of trading, the Dow Jones industrial average fell 69.58, or 0.52% to 13,252.55. The Standard & Poor''s 500 index was down 10.23, or 0.70%, at 1,456.56, and the Nasdaq composite index shed 19.20, or 0.75%, to 2,542.05.


[R]09:00AM U.S. stock futures pointed to lower opening ahead of data.[/R]

U.S. stock futures looked inclined to lower opening Tuesday, reflecting nervousness ahead of consumer-confidence data and fears that financial markets turmoil will spill over into the broad economy. The Conference Board''s gauge is expected to have dropped sharply. A broker downgrade of three giant investment banks further weighed sentiment down.

Citigroup ((C))) lost 1.2%, Lehman Bros ((LEH)) dropped 2.6%, and Bear Stearns ((BSC)) slipped 2.9% after Merrill Lynch ((MER)) cut its rating on the stocks to neutral from buy, citing the impact of debt market exposure.

The broker said Bear Stearns and Lehman are dependent on the debt markets to a larger extent than other firms. Consequently, earnings are likely to suffer from a slowdown in securitization and mortgage business. Merrill cut its 2008 profit outlook for Lehman by 22% and for Bear Stearns by 16%. The broker cut its earnings forecast for Citigroup by 5% only as the group''s broader business mix is expected to soften the earnings shortfall.

Among other pre-market highlights, State Street ((STT)) fell 2.8% on a report it has exposure to $22 billion of asset-backed commercial paper conduits, the highest exposure to conduits of any European or American bank.

In merger-and-acquisitions news, PolyMedica ((PLMD)) climbed 14% after MedcoHealth Solutions ((MSH)) agreed to buy it in a $1.5 billion all-cash deal. Companies expected to release quarterly earnings included Borders ((BGP)) and Corinthian Colleges ((COCO)). S&P 500 futures fell 6.7 points at 1,463.10 and Nasdaq 100 futures declined 7.5 points at 1,943.00. Dow industrials futures fell 60 points.


[R]8:00AM MedcoHealth Solutions agreed to buy PolyMedica for $1.5.[/R]

MedcoHealth Solutions ((MHS)), pharmacy benefits management company announced Tuesday it will acquire diabetes treatment supplier PolyMedica Corp. ((PLMD)) in a $1.5 billion cash deal, or $53 per share. The purchase price represents a 17% premium to PolyMedica''s closing stock price Monday.

The transaction, which is expected to complete late this year, was unanimously approved by the boards of both companies. It is also subject to the approval of PolyMedica shareholders and other customary closing conditions. Lazard served as financial advisor to Medco, while PolyMedica received financial advice from Deutsche Bank Securities.

The combined company, Medco-PolyMedica, will serve 3.8 million diabetes patients under treatment. PolyMedica serves nearly 1 million diabetes patients through its Liberty Healthcare division. The company said that it will retain its patient engagement and service model along with its Liberty brand. MedcoHealth expects the transaction will slightly contribute to its earnings in 2008.


[R]7:00AM New York, 8:00PM Tokyo-Japanese shares retreated on a firming yen, as weak US housing market data sucked out investor confidence. Tokyo Stock Exchange to list exchange-traded fund. Isuzu and Hino sign diesel technology agreement.[/R]

Japanese stocks ended down marginally in mixed trading, dragged by losses in exporters. U.S. inventory of unsold houses climbed 5%, the biggest increase in 17 years kept investors on the edge. Tokyo fell 0.09%, down from a marginal gain of 0.32% on Monday. Of the 225 Nikkei shares, 128 fell, 87 gained while 10 were unchanged.

In Tokyo trading Nikkei 225 lost 0.09% or 13.9 to 16,287.48 in volatile trading led by exporters, as yen firmed against major foreign currencies. Exporters feared foreign earnings would take a hit. Against the euro, the yen was up 157.58 from 158.12 yesterday. To the American dollar, the yen closed up 115.63 from 116 yesterday, tracking firmer gains of as high as 112 reported last week.

The Ministry of Finance completed sale of 20-year bonds worth 800 billion yen at 2.1%. The auction drew bids worth 3.4 times the bond sales lower than 3.63 times in the previous auction in July.

Of the Nikkei 225 shares, exporters fell on concern foreign earnings will fall on a rising yen. Industrials dropped too in mixed trading Nippon Suisan led decliners falling 5.4% followed by Tokyo Dome Corp down 3.10% and Keio Corp lost 2.75%. Mitsubishi UFJ dropped 2.74% while Sumitomo Metals Mining edged lower 2.60%. Paper manufacturing firms, some banks gained. Nippon Sheet Gla led up 4.83% followed by Yahoo Japan Corp up 3.88%. Mitsub Paper rose 3.45% while Kyowa Hakko kog and OKI Electric closed higher 3.10% and 2.88% respectively. Softbank Corp, Bank of Yokohama and Shinsei Bank Ltd all gained over 1.5%. OSI Paper Co Ltd and Nippon Paper Group firmed as well.

The Tokyo Stock Exchange is planning to list an exchange-traded fund that is linked to the price of gold and can be exchanged for the metal, Japan press reports said Monday. The ETF will help TSE’s diversification away from shares and commodities.

Mitsubishi UFJ Financial Group Inc will form a capital alliance with Australian financial service firm Challenger Financial Services Group Ltd by buying firm''s new shares. This may be an extension to Challenger’s Monday announcement that Mitsubishi UFJ Ltd. and Mitsubishi UFJ Securities Co. subsidiaries to Mitsubishi UFJ will buy some 40 million Challenger shares at A$5.20. Mitsubishi UFJ closed lower 1.77%.