Dow Tumbles 30.72 on Poor Economic News : Market Overview
Stock prices tumbled as more bad news on the economy escalated fears that second-quarter corporate profits might not meet expectations.
* The recent rally in the dollar sputtered in response to unexpected sluggishness in U.S. economic growth and a sense that political unrest in Japan may be easing.
* Gold futures prices jumped to a two-week high on New York’s Commodity Exchange.
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Stocks of oil companies and those sensitive to economic cycles such as paper, steel, chemicals and machinery bore the brunt of investor concern.
The Dow industrial average dropped 30.72 points to 3,466.81 on Big Board volume of 278.26 million shares, up from the previous day’s 259.53 million. Declining issues outnumbered advances by about 5 to 4 on the New York Stock Exchange.
Two government reports early in the session set a negative tone for a market already unsettled by several poor earnings forecasts by leading companies.
The Commerce Department said orders to U.S. factories for “big ticket” durable goods plunged 1.6% in May. With the revised data for April, that meant demand has fallen for three straight months. Economists had expected a healthy gain of around 1.2%.
A second report showed that the gross domestic product increased at a smaller than expected 0.7% in the first quarter. Originally, GDP growth for the quarter was put at 1.8%, an estimate that was reduced to 0.9% last month.
“The data suggest the economy will just limp along in the second and third quarters,” said Hugh Johnson, chief investment officer at First Albany Corp.
Also discouraging stock investors was a renewed decline in the dollar against the Japanese yen fueled by the bad economic news.
A weak dollar brings the threat of inflation, in part as import prices rise and domestic producers follow suit.
Among the trading highlights:
* The dollar’s decline helped the price of gold and gold stocks, which tend to rise when inflation becomes a possibility. Newmont Gold rose 2 1/4 to 43 1/2, ASA jumped 1 5/8 to 45 3/8 and Homestake Mining rose 7/8 to 18 5/8
* Retail stocks, which fell Tuesday after Kmart became the latest earnings casualty, ended mostly lower again. Kmart fell 1/4 to 19 7/8, J.C. Penney lost 1/8 to 44 1/8 and Sears fell 1 3/8 to 51 7/8, but Wal-Mart Stores rose 1 to 25 7/8.
* Also lower were the so-called “cyclical” stocks. Armco lost 1/4 to 7, Caterpillar dropped 1 3/8 to 72 7/8 and DuPont lost 2 to 47 1/2.
* Several brokerages downgraded oil stocks. Amoco lost 1 7/8 to 54 3/8, Atlantic Richfield dropped 4 3/4 to 114 5/8 and Chevron fell 2 1/8 to 86 1/4.
* In other actively traded NYSE issues, RJR Nabisco rose 1/4 to 5 1/2 after announcing it was putting off a planned public offering of a new class of stock tied to the performance of its food business.
And the market gained no support from stocks abroad. In Tokyo, the 225-share Nikkei average lost 45.78 points to close at 19,492.52. In Frankfurt, the DAX 30-share average closed up 1.31 points at 1,699.39 and London’s Financial Times 100-share average closed down 6.9 points at 2,900.7.
Currency
The dollar, which has risen by up to 7% against leading currencies in the past month, fell broadly except for a slight rise against the British pound.
The GDP data seemed to lessen the chance that the Federal Reserve would move in the near-term to raise interest rates. That hurt the dollar, since higher rates would increase the value of dollar-denominated investments.
The Japanese yen benefited as participants grew more accustomed to the prospect of a power change in Japan’s government.
In New York, the dollar closed at 109.05 Japanese yen and 1.691 German marks, down from late Tuesday’s 110.90 yen and 1.699 German marks respectively.
The British pound fell to $1.472, from Tuesday’s $1.478.
Other Markets
Gold soared in New York after putting in a mixed performance overseas. On the Commodity Exchange in New York, gold for current delivery rose $5.90 an ounce to $374.50. Silver for current delivery soared 13.6 cents an ounce to $4.392.
Several traders traced the metal’s rise to technical factors, saying there were no new fundamental reasons such as inflation fears to boost prices. Gold is considered an investment hedge to guard against inflation.
In energy trading on the New York Mercantile Exchange, light sweet crude oil for August delivery rose 4 cents to $18.86 a barrel.
Meanwhile, in the bond market, Treasuries benefited from the double-dose of negative economic news.
The Treasury’s main 30-year bond yield dipped to 6.76% from 6.77% on Tuesday. It’s price, which moves inversely to the yield, rose 3/16 point, or $1.88 per $1,000 in face value.
The federal funds rate, the interest on overnight loans between banks, was 3.0%, up from 2.9% late Tuesday.
Market Roundup, D8
