FINANCIAL MARKETS : Breakdown in Budget Talks Sends Dow Plummeting
U.S. stocks tumbled for a second time in three days on concern that a delay in balancing the federal budget could prevent interest rates from falling further.
Stocks plummeted 15 minutes before the close, sending the Dow Jones industrial average down more than 50 points, after budget talks were called off in Washington. Failure to agree on a budget could damage the economy and stunt profit growth, investors said.
“More rate cuts aren’t going to take place until there’s a resolution to the budget,” said Phil Schettewi, money manager at Loomis Sayles in Washington, which manages $2.5 billion.
The Dow industrials fell 50.57 to 5059.32, ceding a gain of as much as 30.7 points earlier in the day. The drop came two days after the 30-stock average tumbled 101.52 points, or 1.9%, its biggest percentage drop in more than a year.
Stocks were spurred lower by a wave of computer-guided “sell” orders.
The Standard & Poor’s 500 Index fell 5.99 to 605.94 after gaining as much as 2.34 earlier. The reversal came as shares of chemical companies, auto makers and airlines--companies whose businesses are closely tied to swings in the economy--pared gains.
On Tuesday, the Federal Reserve’s policy-making panel cut a key overnight lending rate to 5.5% from 5.75%, a move some investors were betting would spur economic growth.
Higher bond yields accelerated the stock slump. The yield on the benchmark 30-year Treasury bond ended at 6.11%.
“The budget talks stalled, the bond market sold off, and we sold off,” said Todd Clark, a trader at Rodman & Renshaw. “It made everyone sober up.”
The Nasdaq Composite Index, filled with companies that make computers and software, dropped 1.13 to 1025.27 after being up as much as 9.88 at 1036.28 earlier. Shares of Microsoft Corp. dropped 3 3/4 to 87 1/8, Cisco Systems Inc. slid 4 1/4 to 74 and Oracle Corp. slid 1 3/4 to 43.
More than 437 million shares traded on the New York Stock Exchange, exceeding the three-month daily average of 373 million. Advancing stocks outpaced decliners by about seven to five on the Big Board.
Among the worst performers Wednesday were shares of drug, health, beverage and tobacco companies. Earlier in the day, the stocks looked less attractive than auto and other “cyclical” issues that would benefit most if the Fed is successful in reviving the economy.
Among market highlights:
* Among big Dow losers were PepsiCo Inc., which fell 2 3/8 to 54 3/4. Philip Morris Cos. tumbled 3 1/2 to 86 3/8 and Coca-Cola Co. gave up 3 to 74 1/4.
* Cereal and snack maker Grist Mill Co. said net income in the quarter ended Nov. 30 was $747 million, or 11 cents a share, down about 4% from a year earlier. The stock fell 7/8 to 8 5/8.
* Boeing Co.’s shares jumped for a second day. The stock closed up 2 5/8 at 78 after climbing 2 1/2 to 75 3/8 Tuesday when it announced increased production of four plane models because of growing demand for aircraft.
* The Dow Jones transportation average rose 11.01 to 2008.38 after being up as much as 32.35 points. Among the gainers, shares of USAir rose 1/8 to 13 1/4; UAL Corp., the parent company of United Airlines, jumped 1 1/4 to 198; Delta Air Lines Inc. spurted 1 7/8 to 77; and AMR Corp. added 2 to 76 1/8.
* Auto stocks rose with the cut in interest rates, with Chrysler Corp. up 5/8 to 54 1/2.
* Oil stocks finished mostly lower despite a rise in oil prices. Texaco fell 1/4 to 77, Chevron rose 3/8 to 57 1/4, and Exxon dropped 1 5/8 to 80 3/8 and Atlantic Richfield fell 3/8 to 110.
Foreign stock markets made strong gains in overnight trading following Tuesday’s recovery on Wall Street. The Nikkei index in Tokyo rose 1.61%; the DAX in Frankfurt added 1.16%; and in London, the FTSE-100 index climbed 1.03%.
Natural gas prices surged again Wednesday and have risen 50% in the last month to historically high levels as abnormally cold weather has tightened supplies.
The latest rally, which carried January natural gas up 20.3 cents to $3.071 per million British thermal units at the New York Mercantile Exchange, was fueled by massive buying by commercial firms and prospects of more frigid weather.
