Stocks Slide Further as Data Loom
The inflation bogeyman sent stock markets cowering again Monday, as some investors cashed out ahead of the government reports this week on wholesale and consumer prices.
Shares were mostly lower worldwide, and the U.S. market’s slump crossed two key thresholds: The blue-chip Standard & Poor’s 500 index fell into the red for the year, and the technology-heavy Nasdaq composite ended in “correction” territory, meaning it has fallen more than 10% from its recent peak.
Some analysts fear that if stocks don’t end their month-old slide this week, many investors will write off the possibility of making money at all this summer, fueling more selling in the near term.
“Everybody is so twitchy,” said Charles Crane, head of Scotsman Capital Management in New York.
The Dow Jones industrial average closed down 99.34 points, or 0.9%, at 10,792.58, narrowly avoiding what would have been its sixth triple-digit decline in a month.
Falling shares outnumbered winners by nearly 4 to 1 on the New York Stock Exchange, although trading volume ebbed from last week’s elevated levels.
The government today will report on wholesale prices in May, followed Wednesday by consumer prices. If the numbers have risen more sharply than expected, they could deepen worries that the Federal Reserve will continue tightening credit to slow the economy.
Inflation concerns began to rock global markets in mid-May, after the Fed signaled that it was nervous about price pressures and wasn’t prepared to declare the end of its nearly two-year-long campaign of raising short-term interest rates.
What’s more, many Fed officials, and their counterparts at other central banks worldwide, in recent weeks have continued to sound warnings about inflation, boosting fears that policymakers will tighten credit enough to threaten the global economic expansion.
Larry Peruzzi, head stock trader at Boston Co. Asset Management in Boston, said the sell-off Monday reflected that some investors were unwilling to take a chance on the May price reports.
On May 17, when the government reported a larger-than-expected jump in April consumer prices, the Dow index dived 214 points.
“Some are thinking this will not be a pretty couple of days,” Peruzzi said.
Investors also were nervous ahead of the three speeches that Fed Chairman Ben S. Bernanke was scheduled to deliver this week, Peruzzi said. In the first speech Monday evening in Washington, Bernanke didn’t discuss interest rates or inflation.
Earlier Monday, several other Fed officials did make comments about monetary policy, and they didn’t help Wall Street’s mood. Sandra Pianalto, president of the Fed’s Cleveland bank, said the recent inflation trend, “if sustained, exceeds my comfort level.”
Dallas Fed President Richard Fisher said the central bank was experiencing “some angst” over inflation.
As during most of the recent sell-off, the market’s slide Monday was steepest in the sectors that had been the star performers in recent years and that may have the most to lose if the economy slows: small-company stocks, commodity-related issues and emerging markets.
The Russell 2,000 small-stock index plunged 18.20 points, or 2.6%, to 683.19, bringing its decline from its record high May 5 to 12.6%.
The Mexican market plummeted 4.3%, its biggest one-day decline since September 2002.
Although U.S. blue-chip stocks didn’t suffer the brunt of the selling, the S&P; 500 gave up the rest of its year-to-date gain, a psychological blow to Wall Street, some analysts said.
The S&P; lost 15.90 points, or 1.3%, to 1,236.40 and is down 1% this year.
The Dow and many other U.S. indexes still are positive for the year, if barely. The Dow is up 0.7%. It had been up 8.6% as of May 10.
The Nasdaq composite index slid 43.74 points, or 2%, to 2,091.32, its lowest close since October. Measured from its five-year high reached April 19, the index is down 11.8%. This marks the first time Nasdaq has experienced a correction -- a drop of 10% to 15% -- since the first four months of 2005.
Historically, corrections have been regular occurrences within bull markets. But in the current bull market that began in October 2002, the S&P; 500 hasn’t had a correction in more than three years.
In Nasdaq and other markets, pullbacks have been relatively gentle affairs since 2002. This one, by contrast, has been abrupt and violent.
“The stock market has been remarkably calm for some time,” Crane said. “We got lulled into a false sense of complacency.”
Peruzzi said he worried that a bad market reaction to the government price reports today and Wednesday could cause many more investors to bail out for the rest of the summer.
Particularly if Fed officials say publicly that the inflation numbers are unacceptable, “I think people will say, ‘That’s it -- it’s off to the sidelines,’ ” he said.
Among the day’s highlights:
* Commodity-related stocks sliding on worries about the economy included nickel mining firm Inco, down $3.09 to $59.48; U.S. Steel, down $2.81 to $57.85; and gold miner Glamis Gold, down $1.76 to $31.60.
Near-term gold futures in New York fell $1.40 to $606.80 an ounce.
* Energy stocks were mostly lower as near-term crude futures resumed last week’s decline, falling $1.27 to $70.36 a barrel in New York. Baker Hughes fell $4.13 to $77.49 and Valero Energy was off $1.75 to $57.48.
* Home builders continued to fall on expectations that housing sales would slow further if the Fed tightened credit again. Centex slid 72 cents to $46.41, Ryland lost $1.67 to $41.64 and Lennar dropped $1.37 to $43.77.
* Heavy industry issues also lost ground on economic jitters. Caterpillar fell $1.20 to $66.32; Cummins lost $3.31 to $101.20.
* Brokerage stocks fell on worries about the bull market. Merrill Lynch was down $2.45 to $68.62.
* In the Treasury bond market the yield on newly auctioned six-month T-bills was 5.12%, a five-year high, reflecting expectations that the Fed will raise its key rate at least one more time when policymakers meet June 29, analysts said. The Fed’s rate now is 5%.
* The 10-year T-note yield ended at 4.98%, up from 4.97% on Friday. When long-term bond yields are below short-term yields it usually means investors expect the economy to slow markedly in coming months.
* The dollar continued to benefit from expectations of higher U.S. interest rates. Higher rates tend to draw more investors’ capital from other countries. The euro fell to a six-week low of $1.26 from $1.264 on Friday.
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Red ink spreads
Some major U.S. stock indexes now are in the red for the year, as the market’s pullback deepens.
*--* Pctg. Change Index Mon. YTD Dow transport -1.8% +6.3% NYSE energy -1.9 +2.4 Dow utilities +0.1 +1.9 Russell 2,000 -2.6 +1.5 NYSE composite -1.4 +1.3 Dow industrials -0.9 +0.7 S&P; 500 -1.3 -1.0 S&P; mid-sized -2.2 -1.3 Nasdaq composite -2.0 -5.2 Nasdaq 100 -2.0 -7.6
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Source: Bloomberg News
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Uneven global sell-off
The pain in the global stock market’s spring sell-off hasn’t been evenly distributed, as this sampling of market indexes shows. And despite heavy losses, many markets still are in the black year to date.
*--* Monday Pctg. drop Market/index close From peak* YTD Bermuda/SEI 4,417.21 -1.5% +13.7% Venezuela/IBC 30,608.91 -3.3 +50.1 U.S./S&P; 500 1,236.40 -6.7 -1.0 Hong Kong/Hang Seng 15,621.44 -9.7 +5.0 Japan/Nikkei-225 14,833.01 -15.5 -7.9 Norway/OBX 295.64 -17.2 +6.4 Poland/WIG 37,425.81 -18.4 +5.1 Mexico/IPC 16,986.27 -22.2 -4.6 Russia/RTS 1,362.51 -22.8 +21.0 Egypt/Hermes 45,092.70 -34.6 -18.6 Saudi Arabia/Tadawul 12,078.71 -41.5 -27.7
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*Indexes listed here reached either multiyear or record highs in the last five months.
All changes are measured in local currencies.
Source: Bloomberg News
