Stocks and Bond Yields Slump
Stocks slumped Thursday and Treasury bond yields dived after a manufacturing index for the mid-Atlantic region showed surprising weakness -- renewing investors’ fears that the economy could be cooling too quickly.
The Philadelphia Federal Reserve Bank said its index of regional manufacturing activity turned negative this month for the first time since 2003.
In the bond market, the 10-year Treasury note yield slid to 4.64%, down from 4.73% on Wednesday and the lowest since March 16, as some investors bet that the Federal Reserve would begin cutting interest rates sooner rather than later to help the economy.
But stock investors weren’t enthusiastic. The Dow Jones industrial average, which Wednesday ended near a six-year high, dropped 79.96 points, or 0.7%, to 11,533.23.
The Standard & Poor’s 500 index lost 7.15 points, or 0.5%, to close at 1,318.03 and the Nasdaq composite gave up 15.14 points, or 0.7%, to end at 2,237.75.
Losers topped winners by about 3 to 2 on the New York Stock Exchange.
The pullback, after a strong rally Wednesday, illustrated how sensitive Wall Street remained to news that might squelch hopes for a “Goldilocks” economy -- one that is neither too hot nor too cold.
“Investors are beginning to say, ‘Holy cow, this is really a slowdown!’ ” said Barry Ritholtz, chief investment officer of Ritholtz Capital Partners in New York. “That’s bad for earnings growth and stocks.”
The mid-Atlantic manufacturing data raised fears that the Federal Reserve might have slowed the economy too quickly as it sought to contain inflation.
“I don’t think the question anymore should be whether the economy is slowing. It really should be the degree to which it will slow,” said Neil Wolfson, head of Wilmington Trust Investment Management in New York.
“The Philly Fed index declined much more than was expected. That is a sign that manufacturers are cutting back, which could be due to the view that consumers will be slowing down,” he said.
Fed policymakers raised their key short-term interest rate 17 consecutive times over two years before leaving it unchanged, at 5.25%, for the second straight time at Wednesday’s meeting.
Besides the troubling manufacturing data Thursday, the Conference Board said its index of leading indicators fell in August for a second straight month. The index, considered a gauge of future economic activity, slipped 0.2%.
The weak data gave bond investors more confidence to lock in current yields. The two-year T-note yield slid to 4.69% from 4.81% on Wednesday.
A continued deceleration of the economy could boost the odds that the Fed will begin easing credit early next year, analysts say. In the meantime, falling Treasury rates could be good news for borrowers by dragging down other rates, such as those on mortgages.
Oil, which has helped buoy the stock market with falling prices in recent weeks, reversed course Thursday. Near-term crude futures rose 85 cents to $61.59 a barrel in New York.
But natural gas futures fell to fresh two-year lows on reports that U.S. inventories were continuing to rise.
In other market highlights:
* Concern about the slowing economy sent an index of industrial shares falling 1.2% for the biggest decline among 10 industry groups in the S&P; 500. Caterpillar dropped $1.34 to $64.54, Eaton declined $1.65 to $67.99 and DuPont fell 40 cents to $42.24.
* General Motors slipped 84 cents, or 2.6%, to $30.93. Renault and Nissan Motor probably won’t buy an equity stake in the world’s biggest automaker, according to people familiar with the companies’ discussions.
* Hewlett-Packard tumbled after news reports said its chief executive might have been more closely involved in an investigation of leaks to the media than had been previously reported.
The stock slid $1.91 to $34.87, weighing on the 30-stock Dow index.
* Cereal maker General Mills jumped $1.73 to $54.75. The company reported that its quarterly profit rose to 74 cents a share, beating the average analyst estimate of 67 cents.
* Carnival rallied $1.17 to $44.75. The cruise operator said third-quarter profit rose 4.3%, beating analysts’ estimates, on higher demand for trips to Alaska and Europe.
* Among new stock issues, computer networker Riverbed Technology rocketed $5.55 to $15.30 on its first trading day. But drug maker Warner Chilcott slipped 5 cents to $14.95 in its inaugural session.
Also, Los Angeles-based Kayne Anderson Energy Development sold 10 million shares at $25 a share. The investment firm’s stock will begin trading today under the symbol KED.
Another new stock priced Thursday was an offering from San Diego-based video software maker Divx, which sold 9.1 million shares at $16. The stock will begin trading today under the ticker DIVX.
* Thailand’s stock market fell 1.4% on its first day of trading after the military staged a coup this week. But many Asian markets shrugged off the instability in the country. Hong Kong’s Hang Seng index rose 0.6% to a six-year high of 17,619.
