Stocks Stumble Amid Missile Tension
Concerns over North Korea’s nuclear ambitions and record oil prices sent stocks lower Wednesday and added to Wall Street’s worries about the economy and interest rates.
In response to North Korea’s test-firing of missiles Wednesday, stocks around the globe sagged as investors worried that tensions between the Asian nation and the U.S. could intensify.
With the U.S. economy still strong -- a report on factory orders out Wednesday was stronger than expected -- investors worrying about interest rates remained hesitant to buy stocks. The Labor Department’s report on June employment, due out Friday, added to the market’s hesitancy, since a strong report could encourage the Fed to continue raising interest rates.
“Investors aren’t really looking for opportunities to get in. They’re looking for reasons to get out,” said Scott Wren, equity strategist at A.G. Edwards & Sons. “I read the Fed statement last week as dovish, but with that employment report coming up, nobody wants to get into the market in front of that.”
The Dow Jones industrial average fell 76.20 points, or 0.7%, to 11,151.82. Broader stock indicators also fell sharply. The Standard & Poor’s 500 index lost 9.28 points, or 0.7%, to 1,270.91, and the Nasdaq composite index fell 37.09, or 1.7%, to 2,153.34.
The Russell 2,000 index of smaller companies fell 10.95 points, or 1.5%, to 719.85.
Declining issues outnumbered advancers by nearly 3 to 1 on the New York Stock Exchange.
Bond yields rocketed higher after data showing strong growth in private-sector jobs boosted investor expectations of an 18th straight Federal Reserve interest rate increase in August.
The yield on the 10-year Treasury note shot up to 5.22% from 5.15% on Monday. Markets were closed Tuesday in observance of the Fourth of July.
A survey by Automatic Data Processing and Macroeconomic Advisers showed private employment growing by 368,000 in June -- a very strong increase that could spark price hikes if consumer demand grows along with employment.
That number was more than double the median expectation for June nonfarm payroll data to be released by the government Friday, and had many Wall Street economists ratcheting up their payroll estimates.
“Today’s ADP national employment report has managed to move the market as much as a typical nonfarm payroll figure does, and has much of the Street revising up their forecast for this Friday dramatically,” said David Rosenberg, North American economist at Merrill Lynch.
Rate-hike expectations were further bolstered by a stronger-than-forecast reading on U.S. factory orders in May from the Commerce Department. Orders rose by a solid 0.7% in May, recovering from a 1.8% drop the prior month. Economists had expected orders to rise 0.1%. The report could signal that the economy is robust enough to withstand further interest rate hikes -- something Wall Street had hoped to avoid.
“Figures like these cast doubt on the Fed’s conclusion that economic growth is moderating,” said Stuart Schweitzer, global markets strategist at JP Morgan Asset & Wealth Management. “What you’re seeing here today is a market that believes that the Fed is still at risk here.”
Notably, the North Korean missile tests did not lead to a new flood of investment in Treasuries. Global investors tend to park money in Treasuries as a refuge from more volatile markets in times of geopolitical turmoil, but the strong U.S. economic data overrode any such bid Wednesday.
In other market highlights:
* Overseas, Japan’s Nikkei-225 stock average dropped 0.7% on news of the missile launches. In Europe, Britain’s FTSE 100 closed down 1%, France’s CAC-40 slid 1.3% for the session, and Germany’s DAX index tumbled 1.8%.
* Trump Entertainment Resorts, which has all three of its casinos in Atlantic City, fell 78 cents to $19.50. Casinos in the city shut down for the first time in their 28-year history, casualties of a budget impasse in New Jersey’s state capitol.
Among other Atlantic City players, Boyd Gaming lost 54 cents to $39.35 and MGM Mirage declined 58 cents to $40.25.
* Nervousness about North Korea’s actions, along with concerns about gasoline supplies, pushed crude oil futures to a record of $75.19 a barrel, up $1.26, in New York trading. Among oil company stocks, Exxon Mobil picked up 40 cents to $62.55 and Chevron added $1.13 to $63.88. ConocoPhillips climbed 75 cents to $67.57.
* General Motors added a penny to $29.42 after Chief Executive Rick Wagoner agreed to meet with Carlos Ghosn, the CEO of Nissan and Renault, this month to discuss a possible three-way alliance, according to media reports.
* Rambus gained $1.53, or 6.7%, to $24.30 on its announcement of a patent licensing agreement with Toshiba for memory controllers.
