Stocks Plunge as Fears of Economic Slowdown Grow
Story and video by Wall Street Journal
Written by Steven Russolillo and Brendan Conway
Photo by AP
NEW YORK—U.S. stocks kicked off June with a sharp loss after disappointing readings on private-sector job growth and manufacturing activity prompted increasing concerns about a slowing economy.
The Dow Jones Industrial Average recently was trading near session lows, down 208 points, or 1.7%, to 12362. Bank of America led the blue-chip index lower, falling 3.8%, while Alcoa dropped 3.4% and Caterpillar declined 3.2%.
The last time the Dow dropped more than 200 points on a closing basis was March 16.
The Standard & Poor's 500-stock index fell 24 points, or 1.8%, to 1321, dragged down by the financial and material sectors. The Nasdaq Composite fell 44 points, or 1.5%, to 2792.
"There's a very large population of portfolio managers who are nervous," said Fred Fraenkel, chairman of investment policy at Beacon Trust Company. "They're invested, but they're nervous and scared the same way they were scared this time last year about a double dip."
Financials were the S&P 500's biggest declining sector Wednesday, dropping 2.7%. The weak private-sector jobs report points to a major obstacle to recovery for banks, given that unemployment is tied to delinquencies on mortgages and credit cards, as well as weak consumer lending.
Market participants say renewed concerns about Europe's debt-laden countries and the global economy dipping back into recession are some of the causes behind the big drop in financial stocks.
"The thought process behind Greece and a potential recession lead people to worry whether the banks truly have recapitalized enough to take another hit in case the economy goes down," Mr. Frankel said.
Wednesday's losses followed a slew of data pointing to a weakening economy. The U.S. manufacturing sector slowed sharply in May, according to the Institute for Supply Management. Additionally, private-sector jobs in the U.S. rose by just 38,000 last month, according to Automatic Data Processing Inc. and consultancy Macroeconomic Advisers. The figure came in well below the gain of 190,000 economists had anticipated.
Construction spending in the U.S. rose 0.4% in April, ahead of economists' expectations. But the figure was revised sharply downward the month before, confirming that the sector remains a drag on the struggling economy.
Wednesday's data adds to a string of reports in recent weeks that indicate the U.S. economy struggled in May. Regional factory reports were weak, initial claims for unemployment benefits remained high and the Conference Board's consumer-confidence index fell sharply last month.
"The key economic statistics are lousy," said Stephen Lieber, chief investment officer at Alpine Mutual Funds. "The numbers say the trajectory of economic expansion has been interrupted. Whether that's short term or not is the question."
Demand for U.S. Treasurys soared following the weak economic data, pushing the yield on the 10-year note below the psychologically key level of 3%.
Crude-oil futures tumbled, but remained above $100 a barrel, while gold futures rose 0.7% to $1547.40 per ounce. The U.S. dollar rose against the euro but ticked lower against the yen.
Prior to Wednesday, stocks had registered four straight sessions of gains. The Dow rose 128 points on Tuesday as optimism about further aid for Greece more than offset concerns over consumer-confidence data.
While the advance was the Dow's biggest since April 20, the blue-chip index ended May down 1.9%, its worst monthly performance since August. It also snapped a string of five consecutive monthly gains.
In corporate news, Dollar General's fiscal first-quarter profit fell short of analysts' expectations, prompting shares to drop 7.4%.
Lions Gate Entertainment swung to a fiscal fourth-quarter profit as the movie and television studio spent much less on distribution and marketing. Shares rose 5.9%.
Sealed Air said it would buy cleaning-products maker Diversey Holdings for $2.9 billion in cash and stock, as the packaging-goods company looks to diversify by selling an expanded line of products to its current customers. Sealed Air shares fell 4.7%.
Jos. A. Bank Clothiers slumped 13% as the seller of high-end men's business and casual clothes reported fiscal first-quarter profit and revenue that fell short of Wall Street's expectations.
Written by Steven Russolillo and Brendan Conway
Photo by AP
NEW YORK—U.S. stocks kicked off June with a sharp loss after disappointing readings on private-sector job growth and manufacturing activity prompted increasing concerns about a slowing economy.
The Dow Jones Industrial Average recently was trading near session lows, down 208 points, or 1.7%, to 12362. Bank of America led the blue-chip index lower, falling 3.8%, while Alcoa dropped 3.4% and Caterpillar declined 3.2%.
The last time the Dow dropped more than 200 points on a closing basis was March 16.
The Standard & Poor's 500-stock index fell 24 points, or 1.8%, to 1321, dragged down by the financial and material sectors. The Nasdaq Composite fell 44 points, or 1.5%, to 2792.
"There's a very large population of portfolio managers who are nervous," said Fred Fraenkel, chairman of investment policy at Beacon Trust Company. "They're invested, but they're nervous and scared the same way they were scared this time last year about a double dip."
Financials were the S&P 500's biggest declining sector Wednesday, dropping 2.7%. The weak private-sector jobs report points to a major obstacle to recovery for banks, given that unemployment is tied to delinquencies on mortgages and credit cards, as well as weak consumer lending.
Market participants say renewed concerns about Europe's debt-laden countries and the global economy dipping back into recession are some of the causes behind the big drop in financial stocks.
"The thought process behind Greece and a potential recession lead people to worry whether the banks truly have recapitalized enough to take another hit in case the economy goes down," Mr. Frankel said.
Wednesday's losses followed a slew of data pointing to a weakening economy. The U.S. manufacturing sector slowed sharply in May, according to the Institute for Supply Management. Additionally, private-sector jobs in the U.S. rose by just 38,000 last month, according to Automatic Data Processing Inc. and consultancy Macroeconomic Advisers. The figure came in well below the gain of 190,000 economists had anticipated.
Wednesday's data adds to a string of reports in recent weeks that indicate the U.S. economy struggled in May. Regional factory reports were weak, initial claims for unemployment benefits remained high and the Conference Board's consumer-confidence index fell sharply last month.
"The key economic statistics are lousy," said Stephen Lieber, chief investment officer at Alpine Mutual Funds. "The numbers say the trajectory of economic expansion has been interrupted. Whether that's short term or not is the question."
Demand for U.S. Treasurys soared following the weak economic data, pushing the yield on the 10-year note below the psychologically key level of 3%.
Crude-oil futures tumbled, but remained above $100 a barrel, while gold futures rose 0.7% to $1547.40 per ounce. The U.S. dollar rose against the euro but ticked lower against the yen.
Prior to Wednesday, stocks had registered four straight sessions of gains. The Dow rose 128 points on Tuesday as optimism about further aid for Greece more than offset concerns over consumer-confidence data.
While the advance was the Dow's biggest since April 20, the blue-chip index ended May down 1.9%, its worst monthly performance since August. It also snapped a string of five consecutive monthly gains.
In corporate news, Dollar General's fiscal first-quarter profit fell short of analysts' expectations, prompting shares to drop 7.4%.
Lions Gate Entertainment swung to a fiscal fourth-quarter profit as the movie and television studio spent much less on distribution and marketing. Shares rose 5.9%.
Sealed Air said it would buy cleaning-products maker Diversey Holdings for $2.9 billion in cash and stock, as the packaging-goods company looks to diversify by selling an expanded line of products to its current customers. Sealed Air shares fell 4.7%.
Jos. A. Bank Clothiers slumped 13% as the seller of high-end men's business and casual clothes reported fiscal first-quarter profit and revenue that fell short of Wall Street's expectations.
posted by Kirk Tanter at
6/01/2011 02:57:00 pm
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