Stocks Fall on Investors’ Anxieties
Stocks slumped Thursday as upbeat labor market data were eclipsed by interest rate worries, lackluster retail sales and a stern warning about the nation’s budget deficit from Federal Reserve Chairman Alan Greenspan.
Treasury prices fell again, sending yields higher. The yield on the benchmark 10-year note rose to 4.6%, from 4.58% on Wednesday. Yields have now climbed almost a full percentage point from their low of 3.65% in March as a string of upbeat economic data has forced the market to price in an ever greater risk of rate hikes from the Fed.
On Wall Street, the pattern was the same: Good economic news sent stock prices lower, as traders bet that higher interest rates were on the way.
The Dow Jones industrial average shed 69.69 points, or 0.7%, to 10,241.26, but was well off the lows of the session.
The broader gauges also were lower. The Nasdaq composite index sank 19.52 points, or 1%, to 1,937.74. The Standard & Poor’s 500 index fell 7.54 points, or 0.7%, to 1,113.99.
The Labor Department reported that the number of people filing new claims for unemployment benefits fell last week to the lowest level since October 2000, a far greater decline than analysts had anticipated.
The drop added to the market’s suspense about the government’s monthly jobs report scheduled for release today.
“The unemployment claims are fueling speculation that tomorrow’s numbers may be better than expected, so that raises the question about when the Fed will pull the trigger on rates,” said Peter Cardillo, chief strategist with S.W. Bach & Co. “So the bears have taken full control.”
Although Wall Street has assigned a great deal of significance to the expected rate hike, most analysts agree it will not have a lasting negative effect on stock prices or economic activity because rates currently stand at 46-year lows. Nonetheless, predictions that the Fed could take action as early as June have made the market jittery.
Contributing to investors’ anxiety, Greenspan said at a banking conference Thursday that the federal budget deficit could represent a major obstacle to long-term economic stability. The deficit will amount to 4.25% of the total economy after it climbs to an estimated $500 billion this year.
In addition, persistent unrest in the Middle East has heightened concern that terrorist acts could cause disruption in oil-producing countries.
Crude oil prices hit a high of nearly $40 a barrel in New York trading Thursday before settling at $39.37, down 20 cents from Wednesday’s close. Despite the retreat, analysts say the $40-a-barrel mark could be topped soon -- giving stock traders something else to worry about.
“If we could attribute all of the stock market weakness simply to concerns about interest rates, then it would be an overreaction, but it’s not the only factor,” said Susan L. Malley, chief investment officer for Malley Associates Capital Management.
Along with oil prices, Iraq and other international tensions, high valuations also have contributed to the market’s volatility, she said.
“Prices are not really cheap now,” Malley said. “We can still find undervalued stocks, but it’s harder. To some extent I think stocks just needed to pause.”
Among Thursday’s market highlights:
* Sony lost $1.01 to $38.07 after the electronics and entertainment giant said it might post a group operating loss for the April-June quarter amid falling prices for the PlayStation 2 game console and promotion costs for the new Spider-Man movie.
* XM Satellite Radio was down $2.32, to $23.48, after reporting a wider first-quarter loss due to growth in its subscriber bases and a one-time charge. It expects to have more than 2 million subscribers by the end of the quarter.
* Gemstar-TV Guide International fell 95 cents to $4.76. After the market closed Wednesday, the company reported a loss for the first quarter and lowered its income forecast for the year. Gemstar also is in a dispute with its insurance carriers over the costs of a continuing Securities and Exchange Commission investigation and litigation.
* Ross Stores dipped $2.66, to $28.33, after sales at the discount retail chain rose only 2% in April, missing both the company’s and Wall Street’s projections, largely because of a slowdown toward the end of the month.
Declining issues outnumbered advancers about 4 to 1 on the New York Stock Exchange, with moderate trading volume.
Market Roundup, C5
