U.S. stocks suffered their biggest one-day decline in more than three months Thursday as concern grew that the Federal Reserve Board won't lower interest rates soon, corporate earnings growth might slow and the Mexican economy may deteriorate further.
At one point, the Dow Jones industrial average plummeted 85.99 points, its worst one-day decline since July 19, before recovering to close at 4,703.82, down 49.86 points, or 1.05%.
Exxon, Goodyear Tire & Rubber and American Express all fell a point or more. It was the market's fourth decline in five days, made worse by four rounds of computer-guided orders to sell.
The catalyst for the slump was a Commerce Department report that said orders for big-ticket goods surged 3% in September, a sign of faster economic growth that might dissuade the Fed from cutting rates again.
"The durable goods number led to a feeling we're not going to get an interest rate cut any time soon," said Robert Freedman, chief investment officer at John Hancock Funds in Boston, which manages assets of $18 billion. "Maybe the Mexican peso, which plunged, raised some fears. And at this point in the consumer cycle, the consumer is pretty tapped out, and his own personal income isn't carrying him."
Banks and financial stocks whose business is hurt by higher rates or consumer bankruptcies crumbled for a second day as yields on the benchmark 30-year Treasury bond climbed to 6.40% from 6.32% on Wednesday.
Confidence in the stock market's outlook sank early in the day when Xerox, waste management company Browning-Ferris Industries and small technology companies such as Pyxis, a maker of drug dispensing machines, all posted unexpectedly weak earnings.
Doubts about political stability in Russia were raised when President Boris N. Yeltsin was reported hospitalized in Moscow with heart trouble. Then Mexican stocks dived in tandem with the Mexican peso.
The dollar strengthened against the mark on the news about Yeltsin, then weakened against most currencies due to the peso's fall. "The deterioration of their currency will hurt their ability to buy our exports, further deteriorate our trade picture, and also we [may have to] bail them out," said Bruce Giammattei, senior currency dealer at Mellon Bank.
Also hanging over Wall Street is the U.S. budget debate in Washington, which, if not resolved, would sharply hurt chances for a further cut in rates by the Fed.
"The worries about what's happening in Washington are an ongoing dark cloud, and a dark cloud makes a gloomy day on Wall Street," First Albany Corp. Chief Investment Officer Hugh Johnson said.
"It's just a whole host of things," said Jack Baker, head of stock trading at Furman Selz Inc., adding that investor concern that the budget deadlock between President Clinton and Congress might shut down the government next month also damaged confidence. "I'm pinning it basically on the failure of the budget talks, Yeltsin being in the hospital and just the complete collapse of the financial stocks."