Cautious mood on Wall Street

Bob Moon Jun 20, 2006

KAI RYSSDAL: There was some rare reassurance for the stock markets today. The government reported builders broke ground on more houses last month than anybody had been guessing. New home construction was up 5 percent in May after a couple of big drops. Gave investors some hope the economy isn’t on the verge of a nervous breakdown. But with the Fed meeting next week — and who knows what else hiding under the bed — our New York bureau chief Bob Moon reports there’s still a very cautious mood on Wall Street:

BOB MOON: A 5 percent jump in housing starts helped calm the market’s recent case of nerves. The Dow Industrials see-sawed back and forth across the 11,000 mark much of the day before closing with a modest gain.

Still, given the Dow’s 72-point slide yesterday and other declines last week, Wachovia Securities market consultant Larry Wachtel suggested anything would be an improvement.

LARRY WACHTEL: We had a day in which the market is respectable. It isn’t getting killed. That’s a plus day for us.

Wachtel insists investors remain cautious ahead of next week’s Fed meeting on interest rates. And he’s worried that today’s silver lining could turn out to be the other side of a gray cloud:

WACHTEL: The point is, what the Fed wants to see is housing slowed down. So, in terms of that, this was a bad number today.

But economists caution the surge in housing starts can’t last. They credit much of the increase to the construction industry catching up with backlogged orders.

At Clearview Economics, Ken Mayland is reassured that Fed policymakers may feel like Goldilocks when they meet next week:

KEN MAYLAND: The Fed needs to cool off the growth of the economy some, to take some of the pricing pressures away, to ease the inflation rate. You don’t want things too hot, you don’t want things too cold, you want them kind of just right.

Many economists see today’s housing report as a reassuring sign. They say the Fed is succeeding in its attempt to ward off inflation. You can see it in the housing market. It’s slowing down without collapsing.

In New York, I’m Bob Moon for Marketplace.

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