Stocks Drop as Job Stagnation Triggers Fears
Fears of a sluggish economy stemming from a lack of job growth sent stocks sharply lower Tuesday, with the Nasdaq composite index wiping out all its gains for 2004 and the Dow Jones industrial average nearly following suit.
Treasury bond yields continued to fall, and the dollar gained ground against the euro and the yen.
The decline in major stock market indexes led to predictions that the market’s year-long rally was over. With job creation stagnant, some analysts believe stocks are overpriced.
“When good news doesn’t move the market higher, we’re obviously in a corrective phase,” said Matt Kelmon, portfolio manager of the Kelmoore Strategy Funds. “The glass is half-empty right now, but I do believe that will switch back to half-full again when earnings go out in April.”
The Nasdaq dropped 13.62 points, or 0.7%, to 1,995.16, after falling 38.85 on Monday.
The Nasdaq, home to many of the technology stocks that fueled last year’s rally, closed below its low for the year of 2,003.37 and posted its lowest close since Dec. 26.
The Dow fell 72.52 points, or 0.7%, to 10,456.96, adding to Monday’s loss of 66.07.
The Dow was off 280.74 points from its 2004 high, set on Feb. 11, and dropped below its 2003 closing level of 10,453.92 in afternoon trading before a slight session-ending rally.
It was the Dow’s lowest close since Jan. 13.
The broader Standard & Poor’s 500 index fell 6.63 points, or 0.6%, to 1,140.58, having fallen 9.66 points Monday.
After peaking three weeks ago, stocks have fallen amid investors’ growing discomfort with the economy and a sense that businesses aren’t creating enough jobs to give the recovery much momentum.
Last Friday’s disappointing jobs report from the government only added to Wall Street’s frustration.
But many analysts weren’t surprised by the market’s recent downturn, believing stocks were due for a correction after their run-up in the last year.
Hugh Johnson, chief investment officer at First Albany Corp., said investors’ moves -- getting out of the once high-flying technology sector and into healthcare and consumer staples -- were similar to those that occurred when the bear market began.
“Normally, in the second year of a bull market things slow down, but this is more than that,” Johnson said. “This is not going to turn out to be a barn-burner of a year as was widely expected.”
Among Tuesday’s highlights:
* Shares in athletic-wear maker Nike jumped $2.17, or 2.9%, to $76.66 on the NYSE after stating it would easily beat Wall Street estimates for the current quarter.
* Sun Microsystems shed 33 cents to $4.33 on Nasdaq after it was downgraded to a “neutral” rating by Banc of America Securities because of concerns over the long-term stability of the company’s Unix business.
* Procter & Gamble raised its quarterly and yearly earnings forecast Tuesday, approved a 2-for-1 stock split and raised its annual dividend. The company’s stock dropped 2 cents to $102.49 on the NYSE.
Declining issues outnumbered advancers by 9 to 5 on the New York Stock Exchange on volume of 1.48 billion shares, up from 1.26 billion Monday.
Yields on the 10-year U.S. Treasury note, which moves in the opposite direction of its price, declined to 3.72%, down from 3.77% on Monday. The yield has fallen more than a quarter percentage point since Thursday, before a government report Friday showed the U.S. economy created fewer jobs than economists had estimated in February.
“Treasury yields are very low, but there are good reasons for that,” said Gerald Lucas, chief Treasury and agency debt strategist at Banc of America Securities. “Anemic job growth, high productivity, little inflationary pressure -- all that implies rates will remain low.”
The dollar climbed against 14 major currencies, including the euro and the yen, on speculation that Japan was buying the U.S. currency.
“Japan is supporting the U.S. dollar against the yen and this is having an indirect effect on other currencies,” said Richard Franulovich, a currency strategist at Westpac Banking Corp.
Purchases by the Bank of Japan have “spilled over into broader dollar strength everywhere else,” he said.
