Stock Market Rally Runs Out of Gas

March 27, 2012 Updated: October 1, 2015
Epoch Times Photo
A trader works on the floor of the New York Stock Exchange this week. U.S. stocks stumbled on Tuesday, after soaring to a 12-month high on Monday. (Andrew Burton/Getty Images)

NEW YORK—U.S. stocks stumbled on Tuesday, retreating from near four-year highs, as investors engaged in some profit taking following a day of mixed economic signals.

The Dow Jones Industrial Average fell 0.3 percent, or 44 points, while the S&P 500 Index also lost 0.3 percent, or 4 points. The Nasdaq fell 0.1 percent.

While U.S. markets have rallied in recent weeks on scores of good news regarding the economy, no additional news appeared on Tuesday that would warrant investors pushing stocks up higher. Volume was light ahead of the end of the first quarter.

The Conference Board said on Tuesday that the closely watched Consumer Confidence Index fell from 71.6 in February to 70.2 in March. While the readings were not bad, they are still below the 90 points that would indicate a healthy and growing economy.

Consumer confidence is an important gauge of the direction of the U.S. economy, as consumer spending accounts for between 50 and 70 percent of the U.S. GDP, economists say.

The reading above 70 shows that U.S. consumers are upbeat regarding the economy, despite mixed signals from the economy. March’s readings were still among the highest in over a year. Over the last month or so, the official unemployment rate has dropped to around 8.3 percent, while gasoline prices have risen, which cuts into consumers’ disposable income. The stock market has gained year to date, but housing prices continue to disappoint.

Gasoline prices are threatening $4 per gallon nationwide, a level, which analysts say is a psychological level that could prompt consumers to cut back on other spending, or switch to shopping online. Gas prices are not likely to come down any time soon, if history is any indication. There is typically a ramp up in gas prices following the Memorial Day holiday in late May.

“The moderate decline was due solely to a less favorable short-term outlook, while consumers’ assessment of current conditions, on the other hand, continued to improve,” said Lynn Franco, director of The Conference Board Consumer Research Center, in a statement on Tuesday.

Housing Prices Tumble

As a whole, the U.S. real estate market is still in the doldrums. Housing prices fell 3.8 percent in January, after a 4.1 percent decline in December, according to the latest reading of the S&P/Case-Shiller Index, which tracks home prices in more than 20 U.S. metro areas.

Home prices are now at 2002-levels, with Phoenix, Washington, and Miami the only three cities reporting gains in January.

In an appearance on “Bloomberg Surveillance” radio show Tuesday, Karl Case, creator of the index and professor emeritus at Wellesley College, said that he was surprised that the housing market has not recovered. “I expected to see it coming back by now and it’s not,” he noted.