NEW YORK – U.S. stocks declined on Tuesday after a disappointing outlook from luxury home builder Toll Brothers Inc. (TOL) pointed to weakness in the housing sector and raised concern about the health of the U.S. consumer.
Stocks ended a four-day winning streak as pessimism about home builders spread to related industries such as retailers and mortgage lenders.
Fannie Mae (FNM), the largest U.S. home funding source, lost 1 percent.
"A soft real-estate market is not good for the consumer. It is not going to bode well going forward," said Weston Boone, vice president of listed trading at Legg Mason Wood Walker. "You have to take into consideration the rising interest-rate environment. There aren't a lot of catalysts for positive sentiment in the market."
The Dow Jones industrial average was down 46.51 points, or 0.44 percent, to end at 10,539.72. The Standard & Poor's 500 Index was down 4.22 points, or 0.35 percent, to finish at 1,218.59. The technology-laced Nasdaq Composite Index was down 6.17 points, or 0.28 percent, to close at 2,172.07.
Shares of Home Depot fell 2.2 percent, or 93 cents, to $40.57. Sears stock lost 3.7 percent, or $4.63, to $119.42.
Fannie Mae shares declined 50 cents to $46.98, while Washington Mutual Inc., the largest U.S. savings and loan, fell 1.6 percent, or 65 cents, to $39.24.
Economists have warned of a slowdown in the housing market because of a steady pace of interest-rate hikes. The average 30-year mortgage rate was 6.75 percent, according to BestInfo Inc. Rates are their highest since June 30, 2004, when the Federal Reserve began its cycle of rate increases.
Shares of Toll Brothers plunged 14 percent, or $5.50, to $33.91 on the NYSE after the company warned new home deliveries and earnings next year would probably fall short of its forecast.
The slide in Toll Brothers' shares helped push the Dow Jones U.S. Home Construction Index down 7.4 percent, the largest percentage drop in three years.
"Rising rates are starting to take their toll and maybe there is something to this bubble idea," said Bruce Zaro, chief technical strategist at Delta Global Advisors. "It would make us cautious about putting money into the home-building sector."
Toll Brothers said softening demand in some markets will slow its ability to raise prices.
Centex fell 6.5 percent, or $4.61, to $66.52, while Meritage sank 11.2 percent, or $7.38, to $58.27.
Shares of auto industry stocks fell after auto parts maker Visteon Corp. (VC) posted a bigger-than-expected third-quarter loss . Visteon's stock plummeted 14 percent, or $1.26, to $7.72 on the NYSE. Another auto parts maker, Dana Corp. (DCN) slid 3.9 percent, or 29 cents, to $7.19.
Dow component General Motors Corp. (GM), the world's largest automaker, lost 3.3 percent, or 88 cents, to $25.87 on the NYSE.
Trading was active on the NYSE, with about 1.41 billion shares changing hands, just below last year's daily average of 1.46 billion, while on Nasdaq, about 1.63 billion shares traded, below last year's daily average of 1.81 billion.
Declining stocks outnumbered advancing ones by a ratio of 1.6 on the NYSE and by 1.47 on the Nasdaq.