Market Rally Tripped Up by New Fears
Stocks succumbed to renewed selling Thursday, interrupting the rebound that began a week ago as a triple dose of economic disappointment heightened worries about the state of the recovery.
Treasury bond yields plunged to new lows as some investors sought stability in government debt at seemingly any price, analysts said.
On Wall Street, the Standard & Poor’s 500 index fell 26.96 points, or 3%, to 884.66. The loss snapped a four-day winning streak for the benchmark index--its longest since December. The Dow Jones industrial average sank 229.97 points, or 2.6%, to 8,506.62, in a sell-off that accelerated late in the day. Profit warnings in the oil industry weighed on the blue-chip indexes.
The Nasdaq composite, meanwhile, tumbled 48.26 points, or 3.6%, to 1,280.00, as profit warnings and brokerage downgrades in the tech sector gave investors more reasons to dump stocks.
“We’re seeing solid evidence that we’re getting a lull in the economy,” said Alan Skrainka, chief market strategist at brokerage Edward Jones in St. Louis. “The recovery is still in place, but it’s modest and uneven.”
In active trading, declining stocks outnumbered gainers by about 3 to 2 on the New York Stock Exchange and on Nasdaq.
Among Treasury securities, the yield on the two-year note fell to a generational low of 2.12% from 2.23% on Wednesday, reflecting uncertainty over whether the equity markets will revisit the multiyear lows they reached July 23. The two-year T-note’s previous low was 2.22%, reached last Friday. The yield on the 10-year note fell to 4.39% from Wednesday’s close of 4.46%.
In currency trading, the dollar weakened to 119.36 Japanese yen from 119.84 and the euro rose to 98.3 cents from 97.7 cents Wednesday.
A U.S. manufacturing report was among the key triggers for Thursday’s stock sell-off, investment pros said. The Institute for Supply Management said its monthly manufacturing index dropped more sharply than expected in July, hitting its lowest level since January.
Separately, the government reported an unexpected drop in construction spending in June, and the number of jobless claims last week increased more than forecast. The reports added to the concerns stoked by Wednesday’s news that the nation’s gross domestic product grew much more slowly than expected in the second quarter.
“People are starting to think, ‘Forget about the second half of 2002. We have to look to 2003 before things really pick up,’ ” said Shelly J. Meyers, Beverly Hills-based manager of the Citizens Value Fund.
Deepening losses in the last hour of stock trading were discouraging as well, she said.
“This market can’t seem to get any traction,” Meyers said. “The buyers disappear and the short-term traders won’t hold stocks overnight.”
Investors will be watching closely today when the government releases its report on July employment. Many economists are predicting that the economy added enough jobs last month to keep the nation’s unemployment rate steady at 5.9%--but not enough to bring the rate down.
In addition to worrying about the economy, some investors fret that the rally that lifted the S&P; 500 by 14.3% from July 24 through Wednesday was not justified by valuations based on fundamentals such as per-share earnings.
“Stocks just aren’t cheap, even though they should be at a time like this,” said Elliot Blumberg, manager of the Vigilant Investors’ Fund, a Santa Monica-based hedge fund. “Financial statements are in doubt, and the world is in a widespread tenuous situation.”
Among the day’s highlights:
* The Nasdaq 100 index, which comprises the biggest non-financial stocks trading on that market, plunged 5% to 913.59, nearing the five-year low of 894 it set last week. Large tech names led the decline, which extended Wednesday’s losses.
Software maker Adobe Systems plummeted $7.13 to $16.83 after issuing a profit warning. Cisco Systems slipped $1.09 to $12.10 amid speculation that its president and chief executive would resign, but the networking giant denied the rumors, Reuters said.
* Oil stocks were among the biggest losers. Exxon Mobil sank $3.11 to $33.65 after falling short of second-quarter earnings forecasts.
In the oil service sector, Schlumberger lost $3.26 to $39.66, Noble dropped $1.75 to $30.65 and Baker Hughes fell $1.18 to $25.62.
* In the restaurant industry, Yum Brands fell $2.69 to $28.21 after Goldman Sachs downgraded the fast-food conglomerate, whose chains include Taco Bell and Pizza Hut. Applebee’s International slumped $2.06 to $20.65 after saying this year’s profit will be in line with forecasts.
* Good news helped various stocks buck the down market. Newell Rubbermaid rose $4.07 to $34.15 after topping second-quarter earnings expectations, and Williams climbed 85 cents to $3.80 after securing new loans and saying it is close to settling its energy sales dispute with the state of California.
* Shares of several California community banks rose on the heels of Wednesday’s announcement that El Centro-based banking company VIB is being acquired. Hawthorne Financial gained 59 cents to $27.99, East West Bancorp added 31 cents to $34.90 and Cathay Bancorp rose $2.94 to $39.50. VIB rose 4 cents to $14.86.
* In foreign markets, stocks fell sharply in Europe, sending the Bloomberg index of 500 European stocks down 3.9%. Key share indexes fell 4.8% in Britain, 5.1% in France and 2.5% in Germany. In Mexico, the Bolsa slid 4.4% to a new low for the year.
Market Roundup, C7-8
