I'd love to see one of Bush's "privatize SS" town meetings tonight! How people will be "building wealth" in the stock market!
Stocks Hit New Lows for Year Amid Fear of Slowdown
By JONATHAN FUERBRINGER
Continued fears about slower economic growth and a surprisingly weak earnings report from I.B.M. sent stocks tumbling today to new lows for the year. But it may be that general uncertainty - something the stock market and millions of investors have never warmed to - is the real culprit.
While some economists are predicting slower economic growth, others are not and no one is talking about a slump. Federal Reserve officials have been worried about inflationary pressures, but any economic slowdown may help relieve those.
"Right now it's a no vote on the economic outlook for the next six months," said Joseph Liro, an economist and market analyst at Stone & McCarthy Research Associates. "And that is because of the uncertainty about the impact of oil" on consumer spending, corporate profits and inflation.
The persistence of crude oil prices above $50 a barrel, he said, "is certainly doing something to consumer sentiment," a fact reflected in the decline in consumer confidence for April, which was reported this morning.
The Dow Jones industrial average closed down 191.24 points, or 1.9 percent, at 10,087.51, and the Nasdaq composite index fell 38.56 points, or 2 percent, to 1,908.15. The Standard & Poor's 500 stock index dropped 19.43 points, or 1.7 percent, to 1,142.62.
The day's declines were the worst daily falls of the year, in percentage terms, for all three market gauges. And after three consecutive selloffs, the market slump was the worst weekly decline since August. For the year to date, the Dow is down 6.5 percent, the S.&P. 500, down 5.7 percent, and Nasdaq, down 12.3 percent.
Trading volume on the New York Stock Exchange was above average and the market fell progressively through out the day as the sweep of selling broadened to more and more stocks. While I.B.M.'s plunge accounted for about half the Dow's decline early in the day, it was only about a quarter at the close.
As stocks fell, the bond market rallied as investors there seemed to buy into the possibility that if the economy is slowing, Federal Reserve policy makers will worry less about inflation and be less aggressive in pushing up its short-term interest rate benchmark.
The yield on the Treasury's 10-year note dropped to 4.23 percent in late trading, its lowest level in two months.
After the market closed on Thursday, I.B.M. reported first-quarter earnings of 85 cents a share, missing Wall Street forecasts by a nickel. I.B.M. plunged $6.94, or 8.3 percent, to $76.70 in late trading and accounted for 53 points of the Dow's 191-point decline today.
And whether or not I.B.M.'s problems are a sign of renewed weakness in the technology sector, its plunge dragged down the prices of other tech stocks, including Intel and Microsoft. The S.&P.'s index for the information technology sector was down 3.1 percent in late trading.
The other stocks weighing on the market are those whose earnings are economically sensitive and will fare poorly if economic growth slows. The Morgan Stanley index of 30 of these companies, including Caterpillar and Sears Holdings, was down 2.4 percent at the close and had fallen sharply on Wednesday and Thursday.
Since the reports of a larger-than-expected February trade deficit on Tuesday and weaker than expected March retail sales on Wednesday, many economists have reduced their economic growth forecasts for the first quarter and are reviewing their predictions for the rest of the year.
Morgan Stanley, for example, cuts its first-quarter growth forecast to 3.2 percent, from 4.1 percent, last week.
While the price of crude oil has fallen back close to $50 a barrel, gasoline prices are reaching record highs and consumers seem to be feeling the impact and curtailing spending, according to some economists.
The University of Michigan's index of consumer confidence dropped sharply in April to 88.7 from 92.6 in March and is at its lowest level since September 2003. "Clearly, higher fuel prices are having an impact on sentiment," said David J. Greenlaw, chief United States fixed-income economist at Morgan Stanley.
Sallie Krawcheck, Citigroup's chief financial officer, said that investors are more cautious and are avoiding stocks.
"We have seen a consumer through this quarter who is acting more conservatively," she said in a conference call this morning. "They are paying down their credit card debt, the number of presented bad checks is down this quarter, and the credit quality is very good.
"They are also pulling back from the stock market. We are seeing it not just in the U.S. but frankly around the world."
The Federal Reserve reported today that factory production in March fell 0.1 percent, the first decline since September.
In trading on the New York Mercantile Exchange, the price of crude oil for May delivery fell 64 cents, or 1.3 percent, to $50.49 a barrel.
The market's decline may have been contained earlier in the day by positive earnings reports from General Electric and Citigroup. G.E. said that first-quarter profits rose by 25 percent, the biggest increase in five quarters. Citigroup said its profits were up 3.2 percent in the three months through March. G.E.'s stock was up as much as 2.8 percent during the day and Citigroup was up as much as 2.1 percent. But by the close of trading, G.E. was up just 0.7 percent and Citigroup just 0.8 percent.
Copyright 2005 The New York Times Company |
