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Dow Weakens as Housing Sector Raises Economic Red Flags

Last Updated September 23, 2020 12:50 PM
Sam Bourgi
Last Updated September 23, 2020 12:50 PM

The Dow and broader U.S. stock market drifted lower Wednesday, as the combination of trade-war uncertainty and dismal housing data raised red flags about the health of the domestic economy.

Dow Slides; S&P 500, Nasdaq Follow

All of Wall Street’s major indexes reported losses Wednesday, mirroring a tepid pre-market for Dow futures. The Dow Jones Industrial Average declined 67.71 points, or 0.3%, to 27,267.92.

Dow Jones Industrial Average faces renewed pressure on Wednesday. | Source: Yahoo Finance.

The broad S&P 500 Index of large-cap stocks fell 0.4% to 2,992.36, with eight of 11 primary sectors reporting losses. Shares of industrials companies were the biggest drag, falling 1.8% as a sector.

Meanwhile, the technology-focused Nasdaq Composite Index fell 0.2% to 8,209.47.

Several Dow blue-chips are expected to report financial results this week, including IBM Corp (NYSE:IBM), Microsoft Corp (NASDAQ:MSFT), and American Express Co (NYSE:AXP).

Building Permits Hit Two-Year Lows

us home starts dow jones stock market
U.S. housing starts and building permits decline in June, government data show. | Source: Shutterstock

June was another disappointing month for residential real estate, as groundbreaking and permit activity declined unexpectedly.

Housing starts fell 0.9% to a seasonally adjusted annual rate of 1.253 million units last month, confounding expectations of a slight increase, the Department of Commerce reported  Wednesday.

Building permits, a proxy for future construction plans, plunged 6.1% to a seasonally adjusted 1.220 million-unit pace, the lowest in over two years.

The housing sector began to cool just as the Federal Reserve started raising interest rates more aggressively. As a result, the housing market has been a drag on economic growth for at least five straight quarters and likely subtracted from GDP in the April-June period, according to CNBC .

Construction activity has been further hampered by labor shortages and periodic spikes  in lumber prices. Both factors have led to tighter inventories and rising property values, which continue to undermine sales. Rising mortgage costs as a result of tighter monetary policy have also been a factor.

After rising for much of 2017 and 2018, mortgage rates have been trending lower the past seven months. The average commitment rate for a 30-year fixed-rate mortgage was 3.75% as of July 11, according to Freddie Mac .

Click here for a real-time Dow Jones Industrial Average price chart.