Stocks Drop as Worries About Mideast Grow
Rising concern over violence in the Middle East and prospects of an economic slowdown in China gave investors yet another reason to sell Wednesday, sending the Dow Jones industrial average down 135 points despite another batch of solid earnings reports.
Commodity prices also tumbled after China’s Premier Wen Jiabao told Reuters that the country might take forceful action to cool its economy. The voracious demand of the world’s most populous nation has been driving up prices of a wide range of commodities for several months.
Gold and silver prices took a hit, as did industrial metals such as aluminum and copper. Soybean and cotton prices also slumped.
In the U.S. Treasury bond market, investors worried that China’s renewed effort to prevent its economy from overheating could lead to reduced demand from the Asian giant, said Tony Crescenzi, chief bond market strategist at Miller, Tabak & Co.
The benchmark 10-year note dropped sharply in price, driving up its yield to 4.50% -- the highest closing level since September -- from 4.39% on Tuesday. Bond yields and prices move in opposite directions.
Wall Street was also beset with worries about rising interest rates and heightened tensions in Iraq, which overshadowed strong corporate profits.
“I think the quagmire of geopolitical news is basically what’s keeping the market from responding to the good economic news and good earnings reports,” said Peter Cardillo, chief strategist at S.W. Bach & Co.
The Dow plunged 135.56 points, or 1.3%, to 10,342.60.
Broader stock indicators also dropped sharply. The Standard & Poor’s 500 index was down 15.70 points, or 1.4%, at 1,122.41, and the Nasdaq index fell 42.99 points, or 2.1%, to 1,989.54.
An attack in Syria that killed four people Tuesday and the continuing violence in Fallouja, Iraq, intensified the foul mood that has sent stocks lower for more than two weeks.
“There’s certainly a lot going on in the political situation that’s attracting more investor attention,” said Jack Caffrey, equities strategist at J.P. Morgan Private Bank.
The overseas news had a greater effect Wednesday because there was no fresh economic news to help investors assess the speed of the economic recovery. Many investors held firm or sold off ahead of three key reports coming in over the next week. The first-quarter gross domestic product report is due out today, the Federal Reserve is set to meet Tuesday to discuss rates, and the April employment data are expected May 7.
“If the data shows that the economy is heating up too quickly, that’ll prompt the Fed to raise rates more quickly and more forcefully than investors would like,” said Michael Sheldon, chief market strategist at Spencer Clarke. “So right now, when things are as good as they can be, and earnings are strong as they are now, that’s the time you want to be cautious and take a contrarian viewpoint.”
Declining issues outnumbered advancers by about 4 to 1 on the New York Stock Exchange, where volume was heavy.
Among Wednesday’s market highlights:
* Shares in raw-materials companies fell on concern that demand from China will erode. Alcoa lost $1.29 to $31.01, and United States Steel dropped $2.82 to $30.56. Freeport McMoRan Copper & Gold Inc. slumped $2.30 to $29.50.
Newmont Mining Corp., the world’s biggest gold producer, dropped $2.72 to $37.47, an eight-month low.
“After a sharp run-up, the bubble in China is closer to ending than most people realize,” said Frank Gretz, chief market analyst at Shields & Co. in New York.
* Comcast was up 23 cents at $30.20, while Walt Disney Co. dropped 23 cents to $23.95 after Comcast said it would drop its attempt to take over the entertainment giant.
* Pharmaceutical company Bristol-Myers Squibb rose 76 cents to $25.48 as it reported earnings that beat expectations by 2 cents and reaffirmed its forecasts for the year.
* McDonald’s’ comeback, launched by its late chief executive, Jim Cantalupo, continued to fuel earnings at the fast-food giant. McDonald’s posted a 56% increase in earnings from a year earlier, meeting Wall Street expectations. McDonald’s gained 41 cents to $27.61.
