Stocks fall as dollar pushes oil, commodities down
Some economic green shoots are showing signs of wilting, giving stock investors an excuse to take profits from the market’s spring surge.
The Dow Jones industrials tumbled 187.13 points, or 2.1%, to 8,612.13 on Monday, one trading day after the blue-chip average erased the last of its 2009 losses. Other major stock indexes also lost more than 2%.
Shares of raw-material suppliers led the way down as commodity prices, which have been rallying along with stocks since early March on hopes for an economic recovery, slumped for a second day.
A key catalyst for the stock sell-off was a decline this month in a Federal Reserve index of manufacturing activity in the New York region. The index came in at minus 9.41, compared with minus 4.55 in May. The trend had been improving in April and May, after a horrendous reading of minus 38.23 in March. A reading below zero indicates manufacturing in the region is contracting.
Separately, the National Assn. of Home Builders/Wells Fargo index of builder confidence slipped this month, its first reversal since January.
“The housing market continues to bump along trying to find a bottom,” said David Crowe, the group’s chief economist.
The report pushed down builders’ stocks, many of which have been losing ground since early May. KB Home lost 6%, while Pulte Homes fell 2.4%.
The data released Monday gave investors more reason to wonder whether the stock market’s rally had outpaced economic reality.
“A lot of investors are waiting for some sort of correction and this may be the beginning of it,” said Sam Stovall, chief investment strategist at Standard & Poor’s.
Historically, he said, the market often drops by double digits after a big rally from a bear market bottom, which many believe occurred March 9.
Stocks also were hurt by comments over the weekend at a meeting of finance ministers in Italy suggesting they were thinking about pulling back on stimulus efforts.
The dollar rallied after Russia’s finance minister said at a weekend meeting with his counterparts in Italy that the greenback’s status as the world’s main reserve currency wasn’t likely to change soon.
An index of the dollar’s value against six major currencies jumped 1.2%. The index is up 3.5% since June 2 after slumping 12% in three months as fears over the global economy retreated and as China and other U.S. creditors expressed concern about the Obama administration’s massive borrowing to fund the economic and financial-system bailouts.
Besides supportive words by Russia and others about the dollar’s status as a reserve currency, the recent uncertainty about an economic turnaround has helped revive the dollar’s status as a haven.
A Treasury report released Monday showed that foreign demand for dollar-denominated securities fell in April, though it’s probable that many investors weren’t so much fleeing U.S. assets as hunting for riskier opportunities elsewhere.
The stronger dollar hit prices of commodities, which are often viewed as a hedge against a weak greenback. An index of 19 major commodities fell 2.2%. Crude oil slid $1.42 to $70.62 a barrel, while gold fell $13.20 to $926.90 an ounce.
Commodity stocks fell along with the futures markets. Alcoa dropped 6.5%. Freeport-McMoRan Copper & Gold retreated 5.8%.
In other market highlights Monday:
* Long-term Treasury yields eased for a third straight session, benefiting from the sell-off in stocks and fresh doubts about the economy’s health. The 10-year T-note yield, which reached an eight-month high of 3.99% on Wednesday, fell to 3.71% from 3.78% on Friday.
* The Standard & Poor’s 500 index fell 22.49 points, or 2.4%, to 923.72. The Nasdaq composite index dropped 42.42 points, or 2.3%, to 1,816.38. Nearly six stocks fell for every one that rose on the New York Stock Exchange. Volume was light.
* European markets, which opened moderately lower, sank further after trading began on Wall Street. Key stock indexes dropped 3.5% in Germany, 3.2% in France and 2.6% in Britain.
--
tom.petruno@latimes.com
Times wire services were used in compiling this report.
More to Read
