Economic Worries Spur Stock Sell-Off
Stocks fell sharply again Friday as investors grew increasingly worried that economic growth is slipping away, preventing the market from staging a solid rebound. Weak forecasts from Walt Disney and others also weighed on Wall Street.
The Dow Jones industrial average, suffering its second straight triple-digit decline, tumbled 193.49 points, or 2.3%, to 8,313.13 after being down as much as 302 points during the session. The blue-chip gauge, which includes Disney, dropped 229.97 points Thursday. Still, it managed to eke out a 48.74-point gain for the week, achieving its first back-to-back weekly gains since March.
Broader measures also fell 2% or more. The Nasdaq composite index skidded 32.08 points to 1,247.92, and the Standard & Poor’s 500 lost 20.42 points to 864.24. For the week, Nasdaq slipped 1.1% and the S&P; 500 rose 1.3%.
Nearly three stocks fell for every one that rose on the New York Stock Exchange on Friday, and losers outpaced gainers more than 2 to 1 on Nasdaq. Trading was moderate.
Investors barely had time to revel in the optimism of last week’s rebound--and an apparent easing of concerns about corporate scandals--when they were assaulted this week with several reports portraying a dramatically slowing economy.
Another dismal report arrived Friday, with the Commerce Department saying orders to U.S. factories fell 2.4% in June, the first decline since February. Economists had forecast a 0.5% gain.
The nation’s unemployment rate, meanwhile, remained stuck at 5.9% in July, the Labor Department said, with only 6,000 net new jobs added last month. That was well below the 60,000 economists were expecting, and it gave investors little reason to believe that the economy is poised for a rebound.
The economic data serve as “a perfectly reasonable catalyst to give back some of these gains,” said Tobias Levkovich, senior institutional equity strategist at Salomon Smith Barney. The Dow industrials had bounced 13% off their recent lows before this latest round of selling.
Other reports this week said that home construction levels fell in June to their lowest level in nearly two years and that the gross domestic product grew at a 1.1% annualized rate in the second quarter, down sharply from a 5% rate in the first quarter.
“You’re going to see rather sluggish economic growth and therefore muted growth in stock prices,” said A. Gary Shilling, who heads a market research firm bearing his name in Springfield, N.J.
Fears that the economy will slip back into recession have raised speculation that the Federal Reserve might lower interest rates yet again, even though they already are at 40-year lows.
Yields on Treasury notes and bonds tumbled Friday, as some traders stepped up bets that the central bank might cut rates. The yield on the Treasury’s benchmark 10-year note slid to 4.29% from 4.39% on Thursday. The yield on the two-year T-note fell to a generational low of 2% from 2.12%.
Goldman, Sachs & Co. on Friday became the first major Wall Street bond dealer to predict another rate cut. The Fed is likely to lower its benchmark overnight-funds rate from the current 1.75% to 1% by year’s end, said William Dudley, the firm’s chief economist.
Another negative factor for stocks is the approaching Aug. 14 deadline for executives to certify their companies’ financial results. With managers forced to sign off on their figures in the next two weeks, investors are worried that more firms will disclose unexpected accounting problems.
Shilling also said that despite the market’s drubbing in the last several months, he believes that stocks have not bottomed out.
“We still haven’t seen a capitulation--a wholesale dumping of stocks and mutual funds--that are typical of bottoms after major bear markets,” he said.
In the meantime, the lackluster earnings results from Disney, ExxonMobil and other major companies in the last two days added to equity investors’ skittishness. Disney warned of a weak showing in the current quarter, and the company’s stock dropped $1.52 a share, or 9%, to $15.31--its lowest since January 1995.
In other highlights Friday:
* Entertainment and hotel stocks retreated on Disney’s warning. Six Flags plunged $2.26, or 15%, to $12.60, and Marriott International fell $1.65, or 5%, to $31.45.
* Retailers also slumped as investors speculated that sales would slow. Wal-Mart Stores lost $1.30 to $46.10, and Home Depot slid $1.20 to $28.43. Both are Dow stocks.
* Makers of chips used in communications and networking gear fell on National Semiconductor’s warning after Thursday’s closing bell that sales in the current quarter would be flat. Texas Instruments declined $1.14 to $19.97, Xilinx slid 84 cents to $17.41, and National Semi fell 25 cents to $16.88. The SOX index of chip stocks fell 3.4% and has lost about half its value since mid-March.
* Mining stocks were a rare bright spot as gold prices rose $3 to $307 an ounce. Newmont Mining gained 50 cents to $25.49, and Goldcorp added 37 cents to $9.10.
* Telecommunications firm Tekelec of Calabasas soared $1.92, or 29%, to $8.48 on a surprising jump in second-quarter earnings.
Market Roundup, C4-5
Times wire services were used in compiling this report.
