Stocks fall on economic jitters
Wall Street stumbled Friday after a survey showed manufacturing contracted last month for the first time in more than three years, stoking concerns that the economy won’t be able to achieve a soft landing. The major indexes ended the week with losses.
Stocks and the dollar were socked after the Institute for Supply Management said its index on manufacturing fell to 49.5 from 51.2 in October. Economists had been expecting an increase to 51.5. A reading under 50 indicates the sector is contracting.
The report, based on a survey of corporate purchasing managers, was seen by some on Wall Street as possibly indicating that the Federal Reserve might have overshot the mark in more than two years of interest rate hikes. Wall Street had been expecting the Fed to hold interest rates steady at its Dec. 12 meeting, but now there is a growing belief the central bank may soon cut rates because of economic weakness.
“This is just additional confirmation that the economy is not only slowing but quite possibly going into a recession,” said Hugh Moore, a partner at investment firm Guerite Advisors. “It’s not just the housing and auto industry any longer. Now, we’re finding out that manufacturing in general is slowing.”
Moore said an index reading below 50 had preceded every U.S. recession since the 1960s.
The economic news sent bond yields lower, with the benchmark 10-year U.S. Treasury note falling to 4.43% from 4.46% on Thursday.
Leading the Big Board lower in volatile trading were shares of manufacturers such as 3M, Caterpillar and United States Steel. The Dow Jones industrial average fell 27.80 points, or 0.2%, to 12,194.13.
Broader stock indicators also declined. The Standard & Poor’s 500 index dropped 3.92 points, or 0.3%, to 1,396.71, and the Nasdaq composite index fell 18.56 points, or 0.8%, to 2,413.21.
The drop does not bode well for Wall Street’s hopes to finish the final month of the year with double-digit growth. The Dow is up 13.8% this year, the S&P; 500 has gained 11.9% and Nasdaq is up 9.4%.
This week the Dow fell 0.7%, the S&P; index dropped 0.3% and the Nasdaq gave up 1.9%.
The dollar continued its slide against other currencies. The euro climbed to $1.334 from $1.325 on Thursday. Also hitting the dollar was a Commerce Department report saying that U.S. construction spending took its biggest tumble in five years during October.
Crude oil futures rose 30 cents to settle at $63.43 a barrel on the New York Mercantile Exchange.
“Prices ended higher for the same reasons we’ve been talking about all week: colder weather, output cuts and a report showing U.S. inventory falling pretty steadily for the past few weeks,” said Tom Bentz, a broker at BNP Paribas Commodity Futures.
Still, Wall Street, which Monday had its worst decline in four months, suffered only moderate damage Friday.
“Considering all of the bad economic news out there, we didn’t see a monster sell-off,” said Todd Salamone, senior vice president of research at Schaeffer’s Investment Research in Cincinnati.
“This was a pullback that may have been needed to strike a little bit of fear that would be enough to create another unwinding,” he said. “A lot of negative sentiment can be unwound.”
In other market highlights:
* Manufacturers were among the biggest decliners, with sectors such as chips and steel affected. Heavy equipment maker Caterpillar fell 84 cents to $61.19. U.S. Steel fell $1.79, or 2.4%, to $73. 3M fell $1.48 to $79.98.
* Automakers were also in focus as they reported car and truck sales for November. Ford fell 9 cents to $8.04 after it reported that its U.S. sales slipped 9.6%. DaimlerChrysler dropped 29 cents to $57.99 after posting a 4.7% rise.
General Motors rose 46 cents to $29.69 in heavy volume, a day after a report said that financier Kirk Kerkorian had dumped his stake in the world’s largest automaker for more than $800 million. Investors seemed little moved by the company’s monthly auto sales report, which showed an increase of 5.8%.
* Home Depot shares surged $1 to $38.98 amid speculation that the home improvement chain might be the target of an acquisition by several private equity firms.
* Calabasas Hills-based Cheesecake Factory sank $1.29, or 4.7%, to $26.41, a day after reporting that third-quarter profit dropped 16%. Cheesecake Factory shares have fallen nearly 30% this year.
