Stocks Tumble on Weak Data
Stocks fell sharply Thursday after mildly disappointing results from Internet company Yahoo and lackluster economic data stoked fears that corporate profits and the economy may not pick up enough to support the market’s recent rally.
“We know the job market is in trouble,” said Peter Dunay, chief market and options strategist at brokerage Wall Street Access. “But if earnings don’t beat estimates and the economic data doesn’t start to firm up, then the market will set itself up for a pullback. The buyers aren’t coming back in anymore.”
The Dow Jones industrial average finished down 120.17 points, or 1.3%, at 9,036.04, with all but one of the 30 Dow stocks ending lower. The broader Standard & Poor’s 500 index shed 13.51 points, or 1.4%, to 988.70. The technology-laced Nasdaq composite index fell 31.60 points, or 1.8%, to 1,715.86.
Losers trounced winners by 8 to 3 on the New York Stock Exchange and by 2 to 1 on Nasdaq. Trading was active, but below recent levels.
Hopes that the summer earnings season would turn out to be a good one have driven stocks sharply higher in recent sessions. Since hitting their lows for the year on March 11, Nasdaq has climbed almost 35%, while the broad S&P; 500 is up about 24%.
But worries that the market may have climbed too far, too fast have prompted some traders to cash in as the quarterly earnings season heats up.
Yahoo’s shares slumped $2.73 to $32.56. It posted solid second-quarter earnings Wednesday, but failed to beat Wall Street’s loftiest forecasts.
Analysts have expressed concerns about Yahoo’s rich valuation, despite the company’s quarterly net profit, which more than doubled from the same period last year.
Yahoo’s stock price trades at a projected price-to-earnings ratio of about 75, compared with 17.5 for stocks in the S&P; 500, according to Thomson First Call. Yahoo’s stock price has about doubled this year.
Retailers also grabbed the spotlight after the nation’s leading chain stores reported June sales largely in line with muted forecasts. But several big names, including J.C. Penney and Kohl’s, lowered their earnings forecasts.
Wal-Mart Stores fell 13 cents to $55.63. Earlier, the world’s biggest retailer said June sales at its stores open for more than one year rose, but at the low end of its previous target. The S&P; retailing index dropped 1.7%.
The employment report added to selling pressure. The government said the number of jobless Americans receiving benefits hit its highest point in more than 20 years in June. New claims for jobless aid also rose unexpectedly last week, defying forecasts for a decline.
The unemployment data underscored stubborn weakness in the labor market and pointed to an economy having trouble generating new jobs.
In other economic news, the Chicago Federal Reserve said its monthly manufacturing gauge for the Midwest fell for the fourth month in a row in May.
Despite the weak economic news, Treasury yields barely budged. The yield on the benchmark 10-year T-note dipped to 3.66% from Wednesday’s close of 3.68%. The dollar, however, was weaker against the euro and the Japanese yen.
Federal Reserve Chairman Alan Greenspan, who told a congressional committee Thursday that high natural gas prices are hurting some U.S. industries, is scheduled to appear before Congress Tuesday to give his semiannual report on the state of the economy.
Shares of USG, W.R. Grace and other companies facing asbestos-related lawsuits fell after U.S. senators failed to agree on legislation that would cap claims against companies that have made products with asbestos.
USG, a building-materials maker whose asbestos liabilities forced it into bankruptcy protection two years ago, dropped $2.50 to $17.60. W.R. Grace, also in Chapter 11, fell $1.01 to $4.14.
Market Roundup, C5-6
