Indices Mauled

Margot Crabtree reports on the declining housing market, fluctuating Product Manufacturers Index and the potential economic fallout -- inflation.
By By Margot Crabtree, Trade Trends | July 31, 2006

The housing slowdown hit our indices hard this month, while the national markets closed mixed, just off center. The sales of new homes rose in May by the fastest rate this year, but existing home sales slumped. Economic news was mixed, too, with consumer confidence up slightly in June. The rate raise from the Fed came with a warning that the central bankers will keep an eye not only on inflation, but also on the growth rate of the economy, and this sentiment cheered Wall Street. "It's the first time the Fed has connected the weaker growth with the outlook for inflation," said Markus Schomer, economist for AIG's Global Investment Group. "That's very positive for the outlook going forward."

The sagging housing market was on display for our trading session ending June 30, 2006, despite the uptick in new home sales. Economists expect new and existing home sales to drop by 10 percent this year as the mortgage rate increase hamstrings demand. "Make no mistake, the home buying market is weakening," said Bernard Baumohl, executive director of the Economic Outlook Group. The sector was also hammered by a Banc of America Securities warning reiterating a cautious view of home builders.

Our indices reflected this weakness, with the Builders' Index off 62.40 points, or 5.89 percent to end at 997.37, and the Product Manufacturers' Index heading south by 35.54 points, or 3.74 percent, to close at 914.17. This is the first month since its creation in November 2004 that the Builders' Index has fallen below 1,000. Declining issues outpaced advancing issues by a 29-to-6 count. On the manufacturers' end, declining issues outstripped advancing issues by a count of 11-to-1.

In the Product Manufacturers' Index, American Standard was the sole company positioned on positive terrain, after Prudential Equity Group analyst Nicholas Heymann upgraded the company to "neutral weight" from "underweight." Heymann said that American Standard had protected itself from rising costs in copper and aluminum, and he re-affirmed a target price on the company of $39. American Standard rose 0.78 points, or 1.84 percent, and closed at 43.27.

USG was the top dollar and percentage loser after the company emerged from its 2001 bankruptcy. USG's reorganization plan requires it to create a trust to pay personal injury claims from asbestos. The company made one $900 million payment and will make two other payments for a total of $3.05 billion in the next year if the U.S. Congress does not set up a national asbestos injury trust fund. USG shed 19.15 points, or 20.80 percent, and closed at 82.65.

The Builders' Index was influenced by a crop of upgrades and downgrades this month. Shares of Skyline jumped on an upgrade from investment firm Matrix Research, which upped its rating to "strong buy" from "hold." Skyline increased 5.80 points, or 15.68 percent, and was the Builders' top dollar and percentage gainer. Skyline closed at 42.78.

Meritage tumbled after JMP Securities downgraded the company to "market outperform" from "strong buy." Meritage lost 6.34 points, or 11.83 percent, and closed at 47.25.

Technical Olympic USA was off 3.70 points, or 20.49 percent after the company said that net sales for the second quarter will be down 25 percent to 40 percent from last year at this time because of lack of demand and competitive pressures. Technical Olympic said it expects the same negative influences on its markets throughout this calendar year. Technical Olympic ended at 14.36, and was the top percentage loser this month.

Price 6/30/2006 Price 5/31/2006 Net Change Percent Change
Product Manufacturers' Index $914.17 $949.71 -35.54 -3.74%
Dow Jones Industrial Average $11,150.22 $11,168.31 -18.09 -0.16%
S&P 500 Index $1,270.20 $1,270.09 0.11 0.01%
NASDAQ Composite $2,172.09 $2,178.88 -6.79 -0.31%
$ Gainer American Standards Cos. 0.78
$ Loser USG -19.15
% Gainer American Standards Cos. 1.84%
% Loser USG -20.80%
Advancers 1
Decliners 110
Source: Trade Trends, (509) 327-1279

Price 6/30/2006 Price 5/31/2006 Net Change Percent Change
Builders' Index $997.37 $1,059.77 -62.40 -5.89%
Dow Jones Industrial Average $11,150.22 $11,168.31 -18.09 -0.16%
S&P 500 Index $1,270.20 $1,270.09 0.11 0.01%
NASDAQ Composite $2,172.09 $2,178.88 -6.79 -0.31%
$ Gainer Skyline 5.80
$ Loser NVR -117.75
% Gainer Skyline 15.68%
% Loser Technical Olympic USA -20.49%
Advancers 6
Decliners 29
Source: Trade Trends

Author Information
Margot Crabtree is president of Trade Trends, a financial services company.


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