NEW YORK, Aug 3: Stocks sank on Friday, tossing major gauges down more than 2 per cent, as Wall Street’s fears of a faltering economy mounted after the nation generated a paltry number of new jobs in July and factory orders sank in June.
We have seen some evidence things are not going quite as well as we had hoped, said Jay Mueller, a portfolio manager at Strong Capital Management, which oversees $40 billion. The recovery is looking a little more sluggish now — part of that is driven by the dreadful performance of the stock market. Bad begets bad.
The economy generated a scant 6,000 new jobs in July and orders for US factory goods fell in June at their steepest pace in seven months, according to the government. The soft numbers took another bite out of hopes for a solid economic rebound after earlier reports this week showed weak growth and souring consumer sentiment.
Investors fled to safe-haven government bonds, ditching stocks after a run-up earlier this week. Yields on two-year US Treasury notes dived to record lows, falling below 2 per cent for the first time ever. As stocks skidded and bonds rallied, speculation grew that the Federal Reserve might cut interest rates yet again.
Investment bank Goldman Sachs predicted the central bank would chop an additional 75 basis points from the 1.75 per cent benchmark fed funds rate by year-end. Fed funds are already at 40-year lows after a string of 11 rate cuts last year.
The blue-chip Dow Jones industrial average tumbled 193.49 points, or 2.27 per cent, to 8,313.13, according to the latest available data. The broader Standard & Poor’s 500 Index dropped 20.42 points, or 2.31 per cent, to 864.24. The technology-laced Nasdaq Composite Index fell 32.08 points, or 2.51 per cent, to 1,247.92.
It’s the fear of a double-dip recession, said Arnie Owen, managing director of capital markets at Roth Capital Partners, referring to two periods of recession separated by a brief economic upturn. The underlying word there is fear as opposed to reality.
Entertainment giant Walt Disney Co. skidded 9 per cent after a steep drop in quarterly earnings and a weak outlook. A report of an expanded federal probe into AOL Time Warner Inc. helped lop 9 per cent off the media titan’s shares.
Declining stocks eclipsed winners by a ratio of 8 to 3 on the New York Stock Exchange and more than 2 to 1 on Nasdaq. Trading was brisk with more than 1.53 billion shares changing hands on the Big Board and more than 1.41 billion on Nasdaq.
The market enjoyed a monster rally on Monday when the Dow raked in its third-largest point gain ever. That run-up had sparked hopes the market was poised for an upturn, but a two-day selloff at the end of the week eroded those gains.
For the week, the Dow edged up almost 0.6 per cent, the Nasdaq lost 1.1 per cent and the S&P 500 gained 1.3 per cent. The Nasdaq has fallen five weeks in a row.
Walt Disney ranked as the largest percentage loser in the Dow, spiraling down $1.52 to $15.31. Earlier, the shares hit a nearly eight-year low. The entertainment giant posted weak results from slack theme park attendance and warned of worse conditions ahead. Debt rating agency Standard & Poor’s weighed in, saying it may cut Disney’s long-term corporate credit rating.
National Semiconductor Corp. lost 25 cents to $16.88. The company cut its fiscal first-quarter revenue forecast, warning that revenues will remain flat in the fourth quarter due to a weak personal computer market.
Morgan Stanley cut its 2003 revenue growth forecast for the semiconductor industry to a range of 15 per cent to 20 per cent from 20 per cent to 25 per cent, citing the risks of a weakening global economy during the second half of 2002.
The Philadelphia Stock Exchange’s semiconductor index fell 3.36 per cent. Intel Corp., the world’s largest maker of computer chips, dropped 85 cents to $16.71.
Texas Instruments Inc., the leading maker of chips used in cell phones, fell $1.14 to $19.97.
Accounting issues were not far from investors’ thoughts, after a string of Wall Street scandals that have shattered investor confidence.
AOL Time Warner fell $1.07 to $10.25, after the Washington Post reported the US Securities and Exchange Commission investigation of AOL has expanded to include a probe of the company’s former business relationship with software firm PurchasePro Inc.
The government reported US payrolls grew by just 6,000 in July, well below economists’ average expectations for a 69,000-job increase, while the unemployment rate held steady at 5.9 per cent.
To make matters worse, the government later reported that US manufactured goods sank in June at the sharpest rate in seven months, highlighting a trend of weak demand for capital equipment such as machinery and computers.
Earlier this week, the government said US gross domestic product shrank for three straight quarters at the beginning of 2001 and grew less strongly than thought at the start of this year.—Reuters