NEW YORK, June 14: US stocks slumped on Friday after a consumer sentiment gauge soured in June, while bond prices continued their upward march as traders saw more reason for the Federal Reserve to keep interest rates low.
Oil prices tumbled after the West’s energy watchdog said big consuming countries were more comfortably supplied than it had previously thought.
The University of Michigan index of consumer sentiment dropped and the reading on consumers’ outlook on the economy’s future also sank, raising fears that Americans may shut their wallets. Confidence is viewed as a precursor to consumer spending, which drives two-thirds of the US economy.
The blue-chip Dow Jones industrial average fell 79.43 points, or 0.86 percent, to 9,117.12. The Standard & Poor’s 500 Index dropped 9.90 points, or 0.99 percent, to 988.61. The technology-laced Nasdaq Composite Index was down 27.13 points, or 1.64 per cent, at 1,626.49.
Some traders said the stock-market action was to be expected after recent advances.
My view of this is it’s healthy profit taking and consolidation, said Gary Wedbush, head of trading at Wedbush Morgan. Markets don’t go straight up. There’s always something out there to assign a pullback to, and the main one would be consumer confidence coming in lighter than expected.
US Treasuries climbed higher as investors bet that the Fed would not only lower interest rates further but keep them near rock bottom for some time to come.
The pressure for a rate cut was evident in the two-year note, where yields slipped further to 1.07 per cent, a new all-time low and far below the Fed’s overnight rate of 1.25 per cent. The two-year note ended at 100-11/32, up 2/32.
The 30-year bond firmed 28/32 to 119-23/32, taking its yield to 4.17 per cent, after hitting another record low of 4.16 per cent.
Still, dealers are growing cautious about the spectacular rally in Treasury prices as yields collapse to historic lows almost daily. Some cautioned that the market may be getting ahead of itself.
The party’s going to stop sometime, and it’s going to be hard to get off, said Andrew Brenner, head of fixed income at Investec Ernst & Co.
The dollar weakened sharply after the consumer sentiment report fanned expectations the Fed may have to cut rates to stimulate the troubled economy. With major share prices falling sharply in late US trading, the dollar traded near $1.1862 against the euro, compared with $1.1765 late Thursday.
The dollar bought 117.41 yen , down from 117.70 on Thursday.
Oil prices fell nearly 3 per cent after the International Energy Agency made its largest revision to oil inventory data ever, adding 79 million barrels to its estimate of oil stored in the industrialized world in March.
On the Commodity Exchange, gold rallied in a sharp reversal of recent direction.—Reuters