Dow Industrials Tumble 120
Stocks slumped Tuesday as some investors bailed out ahead of the Federal Reserve’s expected interest rate hike Thursday.
Treasury bond yields at four-year highs may have encouraged some people to shift from stocks to bonds: Long-term Treasury yields dipped after rising for nine consecutive sessions.
On Wall Street, stocks slid in the first two hours of trading and then drifted lower the rest of the session.
The Dow Jones industrial average ended with a loss of 120.54 points, or 1.1%, to 10,924.74, its biggest decline since it fell 199 points June 5. A plunge of nearly 7% in shares of General Motors weighed on the Dow.
The broader Standard & Poor’s 500 index lost 11.36 points, or 0.9%, to 1,239.20, its worst day since June 19. The Nasdaq composite tumbled 33.42 points, or 1.6%, to 2,100.25, its largest loss since June 12.
Losers topped winners by more than 2 to 1 on the New York Stock Exchange and on Nasdaq.
The day’s economic news was upbeat: Existing home sales were just modestly lower in May, the National Assn. of Realtors said. And the Conference Board’s consumer confidence index showed a surprising advance this month.
But that made some investors feel worse about the outlook for short-term interest rates.
“As we look at that data, there’s nothing that raises hopes that the Fed won’t lift rates,” said Art Hogan, chief market analyst for Jefferies & Co.
The Fed starts a two-day meeting today. On Thursday it is expected to raise its benchmark short-term rate from 5% to 5.25%, which would be the 17th increase in two years.
“The Fed is on everybody’s mind,” said Jeffrey Davis, who oversees $4.3 billion as chief investment officer at Lee Munder Capital Group in Boston.
Markets worldwide have sunk since mid-May on fears that rising inflation pressures would compel central banks to continue tightening credit. But shares have rallied somewhat from their lows of mid-June. The Dow closed at a five-month low of 10,706 on June 13.
In the near term, “I think this market is going to bounce around in this trading range, with the path of least resistance to the downside,” Hogan said.
Higher bond yields may be luring some money out of stocks and into bonds. The 10-year Treasury note yield hit a four-year high of 5.24% on Monday, up from 5% on June 8. On Tuesday, the yield slid to 5.20% as investors stepped up to buy. (Yields decline as bond prices rise.)
Also Tuesday, the Treasury sold $22 billion of new two-year notes at a yield of 5.24%.
Annualized Treasury yields of more than 5% may be appealing to investors who are losing patience with the stock market. The S&P; 500 index is up 0.2% this year, including dividends. The index’s return last year was 4.9% including dividends.
Among Tuesday’s highlights:
* GM dropped $1.85 to $25.90 after announcing new financing incentives to boost sales. DaimlerChrysler fell $1.02 to $46.69 and Ford was off 1 cent to $6.54.
* The Internet sector helped drag Nasdaq down. EBay lost $1.47 to $28.25, its lowest closing price since 2003. Google today is expected to introduce a service to compete with EBay’s PayPal online-payment service. Google fell $1.90 to $402.32.
* Semiconductor stocks were weak. International Rectifier lost $1.51 to $38.92, Broadcom slid $1.55 to $29.98 and Xilinx gave up 91 cents to $22.46.
Marvell Technology Group plunged $7.76 to $44.14 after the chip maker agreed to buy a unit that builds chips for the BlackBerry, Treo and Q hand-held devices from Intel for $600 million. Marvell said the deal would hurt earnings in the near term. Intel dipped 23 cents to $18.05.
* Take-Two Interactive Software tumbled to its lowest in four years after the video game publisher said it received subpoenas from the New York district attorney requesting documents related to earnings and hidden sex scenes in “Grand Theft Auto: San Andreas.” The shares plunged $2.02 to $10.85.
* Calabasas-based Cheesecake Factory added 1 cent to $27.74 in regular trading, but fell to $26.50 after hours, after the company’s announcement that it expected “flat to slightly negative comparable sales” in the second quarter, meaning for stores open at least one year. It cited “macro trends impacting the restaurant industry.”
* California Coastal Communities rallied $1.16 to $31.67. The Irvine-based developer, which has been taking heat from a dissident shareholder unhappy with management, said it expected to pay a special dividend of $11 to $13 a share within the next 90 days.
* Some investors nibbled at energy stocks as oil prices rose for a fifth session, adding 12 cents to $71.92 a barrel in New York trading. Exxon Mobil gained 83 cents to $59.65, Chevron was up 42 cents to $60.10 and Hess rallied $1.30 to $48.20.
* Gold mining stocks pulled back after rallying in recent days. Barrick Gold fell 56 cents to $27.81. Agnico Eagle lost $1.27 to $29.71. The price of gold eased $3.20 to $581.60 an ounce in New York trading.
* Among new stock issues, retailer J. Crew priced its initial public offering at $20 a share, above the expected range of $15 to $17. The stock will begin trading today under the symbol JCG.
