Stocks Tumble on Economic, Iraq Worries
Stocks slumped Thursday as investor sentiment crumbled under the weight of U.S. saber-rattling on Iraq, Federal Reserve chief Alan Greenspan’s warning on the ballooning government deficit and more reports showing a weak economy.
Thrown into the fray were dour brokerage calls on the key semiconductor equipment sector as well as on such leading names as Dow member McDonald’s and Sun Microsystems, a major Nasdaq issue.
“There is nothing for investors to sink their teeth into.... Every rally in God knows how long has failed and that is discouraging,” said Uri Landesman, portfolio manager at Arlington Capital Management. “We won’t rally until a few companies start telling us things are improving and orders are getting better. We’re not getting that.”
The Dow Jones industrial average lost 201.76 points, or 2.4%, to 8,379.41. The Standard & Poor’s 500 index slid 22.54 points, or 2.5%, to 886.91. The technology-laden Nasdaq composite index fell 35.77 points, or 2.7%, to 1,279.68.
Losers led winners by 2 to 1 on both Nasdaq and the New York Stock Exchange. Trading, while up from the levels of Wednesday’s abbreviated session, remained light.
Wall Street was rocked by a sharp increase in the nation’s current account deficit, which showed the economy sucked in imports at a record pace in the second quarter. Also, the number of Americans signing up for state unemployment benefits last week rose unexpectedly to the highest level in more than four months.
Stocks dropped at the start of trading in reaction to that double dose of bad news, which heightened concerns over the outlook for the economy. The mood was further darkened when President Bush told the U.N. General Assembly that “action will be unavoidable” against Iraq unless the United Nations takes a hard line forcing Baghdad to disarm. And in remarks before Congress, Greenspan said the economy is holding up but warned that a return to spending discipline was vital for economic health.
“If you are a potential buyer of stock and you have two world leaders talking about issues that could stall economic growth, you are going to be a lot more cautious,” said Gary Wedbush, head of trading at regional investment bank Wedbush Morgan.
The day’s sharp losses dampened hopes among some investors that Wall Street might stage a rally once the first anniversary of the Sept. 11 terror attacks had passed.
Yields on Treasury securities swooned to the bond-friendly beat of weak stocks, soft jobs data and geopolitical concerns. The yield on the benchmark 10-year Treasury note slid to 3.96% from Wednesday’s close of 4.06%.
Oil prices fell 92 cents, or 3.1%, to $28.85 a barrel in New York trading, spurred by the interpretation of Bush’s speech that military action against Iraq won’t come immediately. “The immediacy is being taken out of the war footing,” said John Kilduff, senior vice president with Fimat USA, referring to the recent spike in oil prices tied to expectations of military action against Iraq.
The dollar tracked stocks lower, losing ground against the euro and the Japanese yen.
In other highlights Thursday:
* Financial stocks were the biggest decliners among S&P; 500 sectors. Citigroup lost 99 cents to $29.15. Insurer American International Group shed $1.85 to $59.19.
* Defense stocks rose after Bush’s speech. Lockheed Martin added 73 cents to $65.98. Raytheon, which makes the Tomahawk missile, rose 27 cents to $35.67. “The speech just served to further the strength in defense stocks,” said Rich Weiss, chief investment officer for City National Bank in Beverly Hills.
Northrop Grumman rose 97 cents to $126.80. The world’s largest military shipbuilder agreed to sell two electronics businesses because the units no longer were part of its long-term strategy.
* Investors sought out gold shares as a haven after the spot price of gold rose $2.30 to $318.90 an ounce. Newmont Mining added 71 cents to $29.60, while Goldcorp rose 23 cents to $11.53.
* Chip-related shares declined after Europe’s Royal Philips Electronics reduced its forecast for semiconductor sales this quarter and a Lehman Bros. analyst cut his earnings estimates for semiconductor equipment makers including Applied Materials and Novellus Systems. The SOX index of semiconductor stocks tumbled 6.1%, its biggest decline since July 25. Intel, the biggest chip maker, dropped 92 cents to $15.70. Applied Materials slid 95 cents to $12.74. Novellus lost $1.30 to $23.64.
* McDonald’s fell $1.03 to $20.31 after Salomon Smith Barney cut its price target and third-quarter earnings estimate for the fast-food chain.
Sun Micro, down 15 cents at $3.22, fell to lows last seen in late 1996 after Salomon Smith Barney said profit will be difficult in the short term.
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Market Roundup, C5-6
