Stocks decline amid new data
Stocks tumbled Wednesday as fresh economic data showed weakness, raising concerns that business activity may be slowing more abruptly than investors had expected.
Small-company stocks took the brunt of the hit. Key indexes in that sector fell the most since Sept. 6.
The downbeat news triggered another wave of buying in the Treasury bond market, driving long-term yields close to their recent seven-month lows.
On Wall Street, the Dow Jones industrial average slid 49.71 points, or 0.4%, to 12,031.02.
The broader Standard & Poor’s 500 index lost 10.13 points, or 0.7%, to 1,367.81. The technology-heavy Nasdaq composite slumped 32.36 points, or 1.4%, to 2,334.35.
The Institute for Supply Management reported a sharp drop in its index of manufacturing activity for October. The decline “raises a real question about how serious the slowdown is going to be,” said Michael Metz, chief investment strategist at Oppenheimer & Co. in New York.
Stocks worldwide had rallied strongly in August, September and October on hopes for a “soft landing” in the U.S. economy that would translate into decent growth and reduced inflation worries. Falling oil prices also boosted optimism.
The Dow index reached a record closing high of 12,163.66 last Thursday.
But in recent days, “Weak economic data has been piling up,” said Peter Boockvar, an equity strategist at Miller Tabak & Co. in New York. That poses a threat to corporate earnings growth in the current quarter and in 2007, he said.
On Tuesday, the Conference Board said consumer confidence declined last month. On Sunday, Wal-Mart Stores reported disappointing October sales.
The stock market had largely shrugged off the economic news Monday and Tuesday. But on Wednesday, sellers took control. Losers topped winners by about 2 to 1 on the New York Stock Exchange in active trading.
That the major indexes didn’t fall harder is an indication “this market is in denial,” said Rob Brown, chief investment officer at Genworth Financial Asset Management. “It wants to focus on the positives and ignore the negatives.”
The bond market sees it differently: The yield on the 10-year T-note ended at 4.56%, down from 4.60% on Tuesday and just above the seven-month low of 4.54% reached on Sept. 25.
The 10-year T-note yield had spiked as high as 4.83% on Oct. 23 as some bond traders began to worry that the economy would accelerate.
The next big test for markets: the government’s report on Friday on October employment.
Among Wednesday’s market highlights:
* The Russell 2,000 small-stock index sank 1.9%. Many analysts say smaller companies’ earnings could be more vulnerable in a slowing economy than those of blue-chip firms.
* Industrial shares falling on concerns about manufacturing activity included Eaton, down $1 to $71.43; Nucor, down $1.09 to $57.32; and United Technologies, off $1.47 to $64.25.
* Some investors turned to stocks of companies whose sales and earnings would be expected to hold up reasonably well in a weak economy. The Dow utility stock index rose 1% to 452.65, a record high. It is up 11.7% this year.
* DreamWorks Animation soared $1.86 to $28.31 after the Glendale-based studio late Tuesday posted better-than-expected quarterly earnings.
* Near-term crude oil futures were flat, easing 2 cents to $58.71 a barrel in New York trading.
