Greenback Concerns Trigger Stock Sell-Off
Stocks suffered their steepest drop in almost two months Monday as investors took profits from the recent run-up while dealing with fresh concerns about the sagging dollar and fallout from the recent surge in terrorist bombings.
Treasury Secretary John W. Snow’s surprising comments over the weekend that the U.S. would not step in to help the slumping dollar helped send the buck to its lowest point against the euro since January 1999 in Monday’s currency trading.
As for the stock market, portfolio managers said it was simply due for a pullback after five straight weekly gains for the Standard & Poor’s 500 index.
“The dollar is more the excuse than the reason for the sell-off,” said Reg Gipson, president of Los Angeles-based Alpha Analytics Investment Group. “We’ve had a very powerful upswing, so it’s not unusual for the market to retrace a big chunk of that.”
The Dow Jones industrial average fell 185.58 points, or 2.1%, to 8,493.39; the broader S&P; 500 slid 23.53 points, or 2.5%, to 920.77; and the tech-heavy Nasdaq composite index lost 45.76 points, or 3%, to 1,492.77.
For the S&P; 500, it was the sharpest one-day drop since March 24, when the blue-chip benchmark fell 3.5%.
Monday’s volume was modest, indicating a lack of conviction among sellers. It was a broad retreat, however, with losers outnumbering winners by more than 2 to 1 on the New York Stock Exchange and Nasdaq. Only 18 members of the S&P; 500 managed to notch gains, while 480 fell and two were unchanged on the day.
Gold prices surged as the recent spate of terrorist attacks in Saudi Arabia, Morocco and Israel reminded investors of geopolitical dangers. The metal, seen as a haven in risky times, rose $9.50 to $364.20 an ounce.
In currency trading, the euro rose to $1.164 from Friday’s close of $1.158, although the greenback managed to gain against the Japanese yen. In the Treasury market, the yield on the benchmark 10-year T-note rose to 3.49% from Friday’s generational low of 3.42%.
On Wall Street, disappointing earnings reports by retailers Lowe’s, Toys R Us and Limited Brands sparked fresh doubts about the U.S. economic recovery, and a decision by the Supreme Court raised the issue of government interference in drug pricing, clipping pharmaceutical stocks.
But profit taking was the main motive for selling, portfolio managers said.
From March 11 through Friday, the S&P; 500 rose 17.9%. In the technology sector, the Interactive Week Internet index and the SOX index of semiconductor stocks -- which soared 30% and 27%, respectively, during that span -- sank 4.7% and 5%, respectively, on Monday.
The market had risen last week to roughly the upper end of its trading range since last summer, said John Forelli, money manager at Independence Investments in Boston. The S&P; 500, which has swung between about 750 and 950 since July, closed Friday at 944.
“The end of the Iraq war was enough to get us to the top of the trading range, but to blow through it we need economic underpinnings,” Forelli said.
Still, money managers said Snow’s comments put investors in a selling mood from the start.
“It’s not particularly helpful for the U.S. government to be talking down the dollar,” Gipson said, noting that foreign investors might pull out of U.S. investments.
John Carey, manager of the Pioneer Fund in Boston, agreed, saying, “At a certain point, the benefits to U.S. exporters of a weak dollar are more than offset by the reluctance of foreigners to send money into our stock and bond markets.”
Given Europe’s own economic problems, “the pendulum has swung too far” in favor of the euro, Carey added.
In other highlights:
* Among major tech names, Intel slid 83 cents to $18.67, Microsoft lost 77 cents to $24.80, Hewlett-Packard dropped $1.07 to $16.88, Yahoo fell $1.80 to $25.95, and EBay slipped $2.59 to $96.60.
* In the retail sector, home improvement chain Lowe’s dropped $4 to $40.30 after saying first-quarter sales rose less than expected. Rival Home Depot, a Dow stock, lost $1.12 to $28.07.
Toys R Us sank 78 cents to $11.12 after reporting a loss in its latest quarter, and clothing chain Limited Brands eased 47 cents to $13.08 after reporting higher profit from an asset sale but lower revenue at its stores.
* Biotech stocks Genentech and Protein Design Labs bucked the down trend after reporting encouraging drug test results. Genentech rocketed $16.95 to $54.85 after saying its drug Avastin helped colon cancer patients live longer in a study, and Protein Design Labs climbed $2.15 to $13.80 after announcing positive early results for its drug Nuvion.
Big drug stocks slumped, however, after the Supreme Court allowed Maine to begin a program that would require the industry to give discounts to the uninsured. Pfizer lost $1.81 to $31.80, and Merck sank $2.80 to $56.65.
Market Roundup, C8-9
