Stocks sink; Disney slumps after top executive says he’ll exit
U.S. stocks fell for a second day Tuesday as the head of the International Monetary Fund sounded downbeat on the outlook for the world economy.
Disney shares slid after the company’s expected successor to Chief Executive Bob Iger announced he was leaving the company. Allergan plunged after the Treasury Department announced tax rules that would make its merger with Pfizer more difficult.
The Dow Jones industrial average fell 133.68 points, or 0.8%, to 17,603.32. The Standard & Poor’s 500 index slid 20.96 points, or 1%, to 2,045.17 and the Nasdaq composite fell 47.86 points, or 1%, to 4,843.93.
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Stocks opened lower and remained down all day. Investors moved into traditional areas of safety, including gold and U.S. government bonds. The market is coming off a multi-week rally that erased nearly all of its losses from earlier in the year.
The yield on the 10-year Treasury note fell to 1.72% from 1.76%. Gold rose $10.30 to $1,229.60 an ounce.
After last month’s big rally, investors are waiting to see how quarterly results from companies come in. Earnings season starts next week with aluminum company Alcoa, as well as big banks such as JPMorgan Chase.
“The market has been [expecting] this quarter’s earnings to be lousy, so if earnings come in better than expected, it might provide some support to the market,” said Scott Wren, senior global equity strategist at the Wells Fargo Investment Institute.
Christine Lagarde, the head of the IMF, warned in a speech that “the recovery remains too slow, too fragile.” She said that the world economy isn’t in a crisis but that slow growth risks becoming ingrained as a “new mediocre.” She also noted that the outlook for the next six months has weakened, suggesting the IMF may be revising its forecasts lower.
Lagarde’s comments helped cause European and Asian markets to close broadly lower. Japan’s benchmark Nikkei 225 index lost 2.4%, hit hard by a rise in the yen. South Korea’s Kospi fell 0.8% and Hong Kong’s Hang Seng sank 1.6%. In Europe, Germany’s DAX fell 2.6%, France’s CAC-40 fell 2.2% and Britain’s FTSE 100 fell 1.2%.
Among individual companies, Allergan fell 15% to $236.55. The U.S. Treasury Department announced new tax rules to discourage what are known as corporate inversions, which is when a U.S. company merges with a foreign company for tax purposes. Ireland-based Allergan was in the process of doing an inversion with U.S. drug giant Pfizer. Shares of Pfizer rose 2.1% to $31.36.
Disney fell 1.7% to $97. The media giant said late Monday that Thomas Staggs, who was considered the heir apparent to Iger as CEO, would depart. Iger has said he plans to retire in 2018.
Benchmark U.S. crude edged up 19 cents to close at $35.89 a barrel on the New York Mercantile Exchange. Brent crude, used to price international oils, rose 18 cents to close at $37.87 a barrel in London.
The euro edged down to $1.1385 from $1.1397. The dollar fell to 110.49 yen from 111.26 yen.
In other energy commodities, heating oil fell 1 cent to $1.075 a gallon, wholesale gasoline was unchanged at $1.378 a gallon and natural gas fell 4 cents to $1.954 per 1,000 cubic feet.
In other metals trading, silver rose 17 cents to $15.12 an ounce and copper fell less than 1 cent to $2.138 a pound.
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