Profit Forecasts Roil Dow and S&P;
A drop in industrial production and a profit warning from McDonald’s on Tuesday took a jab at investors’ already shaky confidence in the economy, sending blue-chip stock indexes to six-week lows.
In the bond market, long-term Treasury yields slid to new 40-year lows as investors again poured money into high-quality bonds.
On Wall Street, the Dow Jones industrial average sank 172.63 points, or 2.1%, to 8,207.55, the lowest close since Aug. 5.
The Standard & Poor’s 500 fell nearly 2% to 873.52, the lowest since Aug. 6.
The tech-dominated Nasdaq composite slid 15.94 points, or 1.3%, to 1,259.94, but it had been lower as recently as Sept. 5.
Stocks were pressured Tuesday by discouraging economic data from the Federal Reserve, which said industrial production fell 0.3% in August. Analysts were forecasting an increase of 0.1% to 0.2%.
McDonald’s, one of the 30 Dow stocks, saw its shares tumble $2.78, or nearly 13%, to a seven-year low of $18.91 after warning that weak sales would hurt profit this quarter.
Also, supermarket giant Kroger slumped $2.25 to $15.76 after the firm cut its earnings growth estimate for the year, citing cautious shoppers and tougher competition. Rival Safeway slid $2.98 to $24.05.
“This economic recovery keeps getting pushed out by these earnings warnings,” said Barry Berman, head trader for brokerage Robert W. Baird & Co.
After regular trading ended, banking titan J.P. Morgan Chase also warned that results this quarter would fall short of expectations, amid rising bad loans.
Stocks failed to gain traction from Iraq’s announcement late Monday that it would readmit United Nations weapons inspectors. Oil prices fell but closed above their lows for the day.
“My feeling is the news on the Iraq thing was a little positive, but I don’t think the Iraq scenario as a whole is positive until there is an end to it,” said Stephen Carl, principal and head of equity trading at Williams Capital Group.
Losers outnumbered winners by 23 to 10 on the New York Stock Exchange and by 21 to 12 on Nasdaq.
Tuesday’s session marked the one-year anniversary of the resumption of trading after the terrorist attacks.
Worries about the economy again turned the focus to the Federal Reserve. Central bank policymakers will meet on Tuesday and are expected to leave their key short-term interest rate unchanged at 1.75%--unless the economic news worsens considerably.
In the bond market, some investors still appear to be betting that the Fed will eventually ease credit further. The 10-year T-note yield fell to 3.82% Tuesday, down from 3.91% Monday and a new four- decade low.
Yields also fell on shorter-term Treasuries.
Some investors also snapped up high-quality corporate bonds. Wal-Mart Stores sold $500 million in five-year notes at an annualized yield of 3.46%.
Among Tuesday’s highlights:
* Other restaurant stocks fell sharply with McDonald’s. Wendy’s slid $1.79 to $30.83, Cheesecake Factory fell $1.67 to $25.45, and fast-food operator Yum Brands sank $2.09 to $27.26.
Soft drink stocks also weakened. Coca-Cola dropped $1.73 to $48.95, and PepsiCo slid $1.70 to $39.25.
* Mortgage giant Fannie Mae plummeted after its regulator, the Office of Federal Housing Enterprise, said it would conduct weekly financial reviews of the company. Fannie Mae on Monday said the mortgage loan refinancing wave had caused an imbalance in its assets and liabilities, though it said that was unlikely to hurt earnings.
Nonetheless, the stock slumped $4.73 to $66.25, a 7% drop. Rival Freddie Mac shed $3.28 to $58, a 5% drop.
* Energy stocks were lower as crude prices fell. Exxon Mobil dropped $1.33 to $33.07, ChevronTexaco lost $2.63 to $71.37, and Unocal was off $1.04 to $31.77.
* Defense stocks, which had surged on Monday amid U.S.-Iraq worries, fell back. Boeing lost 94 cents to $36.29, General Dynamics fell $3.90 to $82.70, and Alliant Techsystems gave up $3.71 to $69.99.
* On the plus side, electronics retailer Best Buy rose $1.37 to $25.46 on second-quarter earnings that were a penny a share higher than analysts were expecting.
Market Roundup, C6-7
