Stocks Tumble, Sending Indexes to New ’05 Lows

Stocks slumped Thursday for the second straight day in a brisk, broad sell-off that knocked major indexes to new lows for 2005.

Investors cited unease about the economy, pointing to signs that tighter credit and high energy costs are taking the wind out of consumer spending and corporate profit growth.

The Dow Jones industrial average tumbled 125 points, bringing the index’s two-day loss to 229.22 points, or 2.2%. It was the worst two-day slide since Aug. 5-6 of last year, when the Dow fell 311 points, or 3.1%.

“People are seeing big-name stocks get hammered and they’re saying, ‘You know what -- wow -- maybe there’s a lot more risk in the market than I thought,’ ” said Chris Orndorff, head of equities at investment firm Payden & Rygel in Los Angeles.

“They’re reassessing what fair value is,” he said, “and they’re coming to the realization that it’s lower than where we are.”

Orndorff noted that General Motors, Ford Motor and insurer American International Group were among the prominent stocks that have been battered in recent days amid dreary earnings forecasts or other troubles.

And after Thursday’s close, IBM caught Wall Street off guard with an earlier-than-expected and disappointing profit report, saying sales stalled late in the first quarter.

Analysts said Big Blue’s surprise could spark an early sell-off today on Wall Street, unless conglomerate General Electric fared better with its earnings report due this morning.

In after-hours trading, IBM fell to about $80.40 from its close of $83.64.

In Thursday’s session, the Dow lost 125.18 points, or 1.2%, to 10,278.75; the Standard & Poor’s 500 index fell 11.74 points, or 1%, to 1,162.05; and the tech-heavy Nasdaq composite plummeted 27.66 points, or 1.4%, to 1,946.71.

Losers topped winners by more than 3 to 1 on the New York Stock Exchange and on Nasdaq. Within the S&P; 500, 10 industry sectors rose while 103 declined.

Ford fell 30 cents to $9.75 and GM lost $1.67 to $26.66, both reaching multiyear lows, as nervous investors awaited next week’s company updates, while scandal-ridden AIG slipped 22 cents to $51.39, nearing its 52-week low reached April 1.

The market had stumbled Wednesday after the government said retail sales in March rose 0.3%, well below expectations.

On Thursday, investors’ concerns that the economy may be slowing were evident in steep losses in industrial stocks. They had soared last year on hopes for continued strong growth.

Copper miner Phelps Dodge dived $5.10 to $89.95, U.S. Steel slumped $1.67 to $44.83 and Caterpillar skidded $3.20 to $85.40.

Truck maker Navistar slipped $1.75 to $32.73 and industrial parts company Eaton sagged $4.66 to $58.40. Both posted higher first-quarter earnings but warned that profit in the current quarter would be below Wall Street estimates.

Apple Computer fell $3.78 to $37.26 after the company said late Wednesday that revenue in the current quarter would meet -- not beat -- analysts’ forecasts.

Meanwhile, investors bought food and drug shares -- sectors often expected to provide havens in times of economic weakness.

Hershey Foods gained 75 cents to $62.30 and Johnson & Johnson added 66 cents to a record $69.25. PepsiCo jumped $1.51 to $55.14 after reporting a 13% surge in first-quarter profit.

Smaller stocks and foreign emerging markets suffered deeper losses than the Dow. The Russell 2,000 index of smaller stocks plunged 10.60 points, or 1.8%, to 591.94, its lowest close since Nov. 2. Brazil’s main market index dived 4.2%.

A rebound in oil prices added to the sour mood, traders said. May crude futures in New York rose 91 cents to $51.13 a barrel.

The stock market’s active trading volume, coupled with new 2005 lows for major indexes, were troubling signs for the short term, said Steve Todd, editor of Todd Market Forecast in Mission Viejo.

“We could be headed for one of those crescendos where people are screaming, ‘Woe is us!’ ” Todd said.

The Dow is down 4.7% year to date. The S&P; 500 is off 4.1% and Nasdaq is down 10.5%.

Todd said the market could bounce briefly if traders see this week’s drubbing as overdone. But continuing weakness in the tech sector and among smaller shares doesn’t bode well for a sustained rally, he added.

“Those are the speculative areas where people go when they’re feeling good about the market,” Todd said, “and right now they’re just going away.”

In other trading Thursday, the Treasury bond market benefited from fears of an economic slowdown. The yield on the 10-year T-note fell to a six-week low of 4.32% from 4.36% on Wednesday as more investors bought bonds to lock in yields. Bond rates decline as their prices rise.

A sharp slide in the yield on the two-year T-note, which is particularly sensitive to expectations of Federal Reserve rate hikes, suggested a growing view that the Fed might pause soon in its credit-tightening campaign. The two-year T-note dropped to 3.56% from 3.65%; it has fallen from 3.87% on March 28.