Advertisement

Stocks Fall on Spending Fears

Share
From Times Staff and Wire Reports

Stocks ended broadly lower Tuesday on renewed worries that U.S. consumer spending might be hurt by the after-effects of Hurricane Katrina.

Those concerns, and a benign inflation report, triggered a modest rally in Treasury bonds, pulling yields lower.

On Wall Street, the Dow Jones industrial average slumped 85.50 points, or 0.8%, to 10,597.44, its biggest one-day point loss since Aug. 16.

Advertisement

Losers swamped winners by 2 to 1 on the New York Stock Exchange and on Nasdaq.

Investors’ mood soured early in the session, when electronics retailer Best Buy reported quarterly earnings that missed expectations. The company also warned that results in the current quarter would disappoint, and said it was concerned about the effects of high gasoline prices on consumer spending.

Best Buy shares tumbled $5.57, or 11%, to $44.79 and pulled the rest of the retail sector down.

Gasoline prices shot up after Hurricane Katrina slammed many energy facilities along the Gulf Coast, and many experts warn that prices may remain at high levels indefinitely.

“We still have a refining issue,” said Joseph Allman, an analyst at RBC Capital Markets in Houston. “Refineries in other parts of the country have been able to increase output, but they will have to go down later this year for maintenance. Refinery output will then fall below normal.”

Although crude oil futures in New York declined Tuesday, off 23 cents to $63.11 a barrel, gasoline futures gained, adding 1.79 cents to $1.892 a gallon.

Jeff Kleintop, chief investment strategist for PNC Financial Services Group in Philadelphia, said Best Buy’s downbeat report “really got people questioning the impact of oil on consumer spending.”

Advertisement

Those worries had been pushed aside in the last two weeks, driving many stocks higher and lifting the Standard & Poor’s 500 index close to a four-year high by Friday.

On Tuesday the S&P; lost 9.36 points, or 0.8%, to 1,231.20. The Nasdaq composite index slid 11.08 points, or 0.5%, to 2,171.75.

The Russell 2,000 index of smaller stocks dropped 7.69 points, or 1.1%, to 673.13.

The Treasury bond market was a beneficiary of doubts about the economy, because a slowdown could give the Federal Reserve pause in its credit-tightening campaign. As buyers bid up bond prices, yields declined. The 10-year T-note ended at 4.13%, down from 4.17% on Monday. The two-year T-note eased to 3.86% from 3.91%.

Bonds also were helped by the government’s report that the producer price index fell 0.1% in August, excluding energy costs.

“The market is breathing a sigh of relief,” said Alex Li, an interest-rate strategist at Credit Suisse First Boston in New York. “As long as inflation is in check it will probably make the Fed less hawkish than otherwise.”

Still, analysts are divided on whether the central bank will raise its benchmark short-term rate, now 3.5%, when policymakers meet Tuesday.

Advertisement

Immediately after Katrina hit, expectations were widespread that the Fed would pause at this month’s meeting, waiting to see how the economy overall would fare. In recent days, however, some Fed officials have appeared to signal that they saw no compelling reason to stop tightening credit.

Among Tuesday’s market highlights:

* Retail shares falling with Best Buy included J.C. Penney, down $1.15 to $48.81; Target, down $1.23 to $54.19; Circuit City, off 46 cents to $16.46; Wal-Mart, down 82 cents to $45.07; and RadioShack, off 53 cents to $25.68.

* Newspaper stocks tumbled after Knight Ridder said results this quarter, excluding discontinued operations, would fall 20% from a year earlier because of higher newsprint costs and other factors. Knight Ridder slid $3.44 to $61.46, Gannett lost $2.37 to $72.43 and Tribune, parent of the Los Angeles Times, dropped $1.24 to $37.69.

* Airline stocks sank amid rumors that both Delta Air Lines and Northwest could file for bankruptcy protection soon. Northwest plunged $1.74 to $1.57; Delta fell 7 cents to 78 cents.

* On the plus side, Nokia jumped 74 cents to $16.81 after the cellular phone giant raised its quarterly sales and profit forecasts.

* Brokerage Charles Schwab gained 48 cents to $14.46 after an analyst at Friedman Billings Ramsey raised his rating on the stock to “outperform” from “market perform,” saying the firm was at a turning point in getting growth back on track.

Advertisement

* Ligand Pharmaceuticals of San Diego dropped 61 cents to $8.19. The company said late Monday that the Securities and Exchange Commission had started a formal investigation of the earnings restatement the company disclosed in May.

* Gold fell for the first time in nine sessions as some investors took profits after the metal’s price neared a 17-year high. Near-term futures slid $3.60 to $446.10 an ounce. Gold mining stocks also fell.

Advertisement