Housing, Inflation Worries Pressure Wall Street

March 31, 2007

Markets were punished in March on worries that the weak housing sector could seep into the broader economy as our session and the quarter ended March 30, 2007. Standard & Poor reported its January housing index had the worst showing in 13 years. Pouring fuel on the bearish fire, Federal Reserve Board Chairman Ben Bernanke warned Congress that inflation was still too high for comfort.

The home building sector got no relief when the subprime meltdown hammered the sector along with the broader market. Although the Product Manufacturers' Index came through the mêlée with its positive position intact — adding 6.04 points, or 0.62 percent to close at 983.67 — the Builders' Index was battered down 99.45 points, or 9.15 percent to end at 987.56. For the builders, declining issues clobbered advancing issues by a 6-to-1 margin; for the manufacturers the margin was 3-to-1.

Dow was up on the Manufacturers' side after takeover rumors began floating, and Dow ended up 2.08 points, or 4.75 percent. Dow closed at 45.86 and was the top dollar and percentage gainer.

Shares of USG dropped 7.42 points, or 13.72 percent. J.P. Morgan Securities initiated its coverage on USG with a rating of "underweight." The investment firm said that the downturn in the construction sector would diminish demand for the company's products over the next two years. USG closed at 46.68 and was the top dollar and percentage loser.

Over on the Builders' side, Weyerhaeuser shed 11.17 points, or 13 percent, after BMO Capital Markets cut its rating to "underperform" from "market perform." Brokerage firm UBS also downgraded Weyerhaeuser to "reduce" from "neutral," saying the stock was valued too high. Talk about Weyerhaeuser becoming a real estate investment trust, or REIT, has bumped up the stock in recent months. Weyerhaeuser closed at 74.74.

Technical Olympic crumbled 5.02 points, or 55.72 percent, this session after the company reported a fourth-quarter loss of $243.8 million, or $4.09, compared with earnings of $75.9 million, or $1.23 per share earned in the same quarter last year. Results this year include a pre-tax charge of $275 million to cover a planned joint venture restructuring and an impairment charge of $97.9 million. Excluding these charges and others, adjusted income was $38.4 million, or $0.64 per share. Analysts surveyed by Thomson Financial were expecting earnings of $0.23 per share. Technical Olympic closed at 3.99 and was the top percentage loser.

Shares of WCI edged forward after the company said it will consider investor Carl Icahn's tender offer of $22 per share. WCI said it will review the proposal and make a recommendation to its shareholders by April 5. Investment firm JMP Securities cut its rating on the company to "market underperform" from "market perform." Matrix Research downgraded WCI to "strong sell" from "hold." WCI added 0.52 points, or 2.50 percent, and closed at 21.34.