Dow drops 261 points on consumer confidence, earnings data
The stock market suffered its biggest setback in three weeks Friday, with the Dow industrials sinking 261 points, as slack consumer confidence and troubling results from bellwether firms revived fears about the economic recovery’s stamina.
After falling through much of the spring and early summer, stocks rallied this month on the notion that, as they have for the last year, corporate earnings would stay strong in the second quarter despite sluggish U.S. employment. Until the string was broken Thursday, stocks had moved higher for seven straight days.
But lackluster revenue at Bank of America Corp. and General Electric Co. raised concern that the bleak labor market is finally exacting a toll on corporate America. Although many economists predict the U.S. economy will avoid falling back into recession, investors worry that almost imperceptible growth in jobs could weigh on earnings and stock prices for much of the year.
“This was all about the U.S. economy,” said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. “There’s a missing wheel and that is jobs. That’s going to cause spending to drop and ultimately cause profits to sag.”
Adding to those concerns, a widely followed consumer confidence gauge fell Friday to its lowest mark since August 2009.
The Dow sank 261.41 points, or 2.5%, to 10,097.90. The Standard & Poor’s 500 index shriveled 2.9%. The technology-heavy Nasdaq composite tumbled 3.1%.
The declines pushed the indexes into the red for the week, with the Dow off 1%, the S&P down 1.2% and the Nasdaq declining 0.8%.
Investors poured into Treasury bonds, sending the yield on the 10-year Treasury note to 2.94%, down from 2.97% on Thursday and underscoring fears about the specter of deflation, a general decline in prices that can sap economic growth.
Though its earnings topped estimates, BofA shares sank more than 9% on poor performance by its investment-banking and mortgage divisions.
Investors also were unimpressed with the second-quarter results from Citigroup Inc., though they also topped expectations. Citigroup shares slumped 6.3%.
BofA spooked the market by estimating that the financial-reform package approved by Congress on Thursday could reduce its annual revenue by as much as $4.3 billion, or about 3.5% of its 2009 revenue.
GE notched its first profit growth in nine quarters, compared with a year earlier, but revenue at the industrial giant came in lower than expected. That renewed concern that corporate earnings are being propped up by cost cutting rather than rising demand for products, a scenario that can’t last indefinitely.
Companies “continue to make their numbers on lackluster revenue,” Ablin said. “If this is as good as it gets, then we’re setting ourselves up for disappointment.”
On an upbeat note, shares of RealD Inc., a Beverly Hills developer of 3-D display technology, soared in their trading debut.
The shares, which were sold at $16 apiece in the company’s initial public offering late Thursday, spiked as high as $21 after trading began Friday. The stock, trading under the symbol RLD, closed at $19.51, up $3.51, or 22%.
RealD licenses its 3-D systems to theaters and develops the technology for use with consumer electronics. The company’s applications also have been used in the military, medicine and for piloting the Mars Rover. It has benefited from the boom in 3-D business in Hollywood.
Times staff writer Tom Petruno contributed to this report.
