Stocks Sink as Outlook Darkens
Stocks suffered a second straight round of steep losses amid new signs that bellwether companies and their customers are struggling. Jittery investors also placed early bets that jobs data due out Friday morning will be bleak.
The Dow Jones Industrial Average finished down 443.48 points on Thursday, off 4.9%, at 8695.79, hurt by declines in all 30 of its components. The Dow has fallen 929.49 points, or 9.66%, over the past two days, the biggest percentage drop since the crash of October 1987.
The weakest of the blue chips by far was General Motors, off 13.7%, after the president of its North America unit said that the next 100 days will be vital to the survival of the struggling U.S. auto industry.
The remarks, part of a speech to an industry group, fueled expectations that GM's third-quarter profit report due Friday will be dismal and that Congress may increase its existing $25 billion loan program to prop up the auto industry.
Investors also paid close attention to a series of reports from retailers on same-store sales in October. Most of the reports were weak, although Dow component Wal-Mart Stores managed to buck the trend.
The generally downbeat trend in the retail industry was worrisome, as was the possibility that strength at discounters like Wal-Mart may signal that consumers are continuing to tighten their belts, hunting for bargains and spending less at chains with higher prices.
Considering that consumer activity constitutes more than two-thirds of the overall U.S. economy, continued weakness in purchases of everything from televisions to t-shirts could deepen the recession that most economists believe is already underway. Many stock investors have lingered on the sidelines lately, waiting for more clarity about whether things will get much worse.
'There's just not a lot of buying power out there right now, so any bad news we get is going to tend to get the market moving lower,' said Daniel Genter, president and chief investment officer of RNC Genter, a Los Angeles money-management firm.
Volume at the New York Stock Exchange was slightly below the year-to-date average. Decliners outnumbered advancers nearly five to one.
Traders said it appeared some participants were placing early bets to brace for a worse-than-expected jobs report when the government issues its monthly assessment prior to Friday's opening bell. According to Dow Jones Newswires, the consensus estimate on Wall Street is that the report will show that nonfarm payrolls shed 200,000 jobs in October, marking the 10th straight month of declines.
'It really looks like people are worried,' said Randy Frederick, director of derivatives trading at Charles Scwhab. 'I can't see a lot of other reasons for the losses over the last few days to be so deep.'
Government officials around the world are continuing to take steps to stabilize the global economy, although their actions have shown only mixed results so far.
On Thursday, U.S. House Speaker Nancy Polosi told the Wall Street Journal that she is considering a two-staged effort to boost the shaky U.S. economy, arguing for action now on a $60-to-$100 billion stimulus package, followed early next year by a companion measure that would include a 'permanent tax cut.'
Significant reductions in interest rates in Europe did little to stanch the stock market's slide on Thursday. The European Central Bank trimmed its benchmark rate by an expected half-point to 3.25%. The Swiss National Bank cut its key rate by a half-point to 2%.
The Bank of England slashed its benchmark rate by a bigger-than-expected 1.5 percentage points to 3%.
'That was really the surprising one,' said Peter Cardillo, chief economist at Avalon Partners in New York. 'Rather than comforting people in the markets, I think it's worried them a bit. It makes you wonder if they're panicking.'
The dollar rallied against the euro and British pound as investors prepared for an increased supply of those denominations sloshing through the global economy. The pound slid to $1.5627, down from $1.5907 late Wednesday.
The U.S. Dollar Index, which measures the greenback's value against a basket of six overseas currencies, was sharply higher, up 1.5%.
The technology sector was a big loser on Thursday after a downbeat forecast from Cisco Systems, which is often viewed as a litmus test on corporate investment since purchases of electronics are an important precursor to expansion in most industries. Cisco shares were down 2.6% after the company said on Wednesday that current-quarter sales may decline by 5% to 10%.
The tech-focused Nasdaq Composite Index was recently down 4.3%. The small-stock Russell 2000 fell 3.7% to 495.84. The S&P 500 fell 5% to 904.88. All its sectors traded lower, led by energy, financials, and the consumer-discretionary sector. Each category fell more than 6%. |
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