US investors dumped stocks and sought safe-haven assets like the dollar and Treasurys today on signs that the global economy is still struggling.
The Dow Jones industrial average lost 104 points but recovered some of its earlier losses.
A disappointing earnings forecast from Dow Jones industrials component 3M and a weak sales report from McDonald’s, another Dow company, pulled stocks lower. The reports overshadowed an increased profit forecast from FedEx.
Reports in Britain and Germany signalled that manufacturing remains weak, while Japan’s government approved 81 billion dollars in stimulus measures to keep its economy out of recession.
Credit rating agencies warned about debt problems in Dubai and Greece.
US investors sent the dollar and Treasury prices higher in response to the day’s news.
Commodities fell as the dollar rose. A stronger dollar makes commodities more expensive for buyers overseas, and harms profits at companies that have large international operations.
After the huge rally in stocks and commodities this year, investors are looking for clues about where the US economy is headed and how best to position their portfolios for next year. Investors are uncertain of how long the environment of low interest rates and a weak dollar that helped fuel the market’s rally will last.
Philip Dow, managing director of equity strategy at RBC Wealth Management in Minneapolis, said 3M’s forecast drew attention from FedEx and that the day’s retreat is in order after the steep gains in stocks overall.
“People were so enthused with FedEx then got a little disappointed with 3M,” he said. “I just think it’s a rest.”
At the same time, there are still plenty of doubts about the economic recovery to drive cautious investors to pad their portfolios with safe havens. With the Standard & Poor’s 500 index up 63.1% since early March, many investors are looking to protect their gains.
Stocks came off their lows of the day as President Barack Obama proposed spending on infrastructure projects as well as increased tax cuts for small businesses.
The speech came after the government’s unemployment report on Friday showed far fewer job losses in November than expected. However investors still have doubts about how strong a recovery will be with one in 10 Americans out of work.
The Dow fell 104.14, or 1%, to 10,285.97. The Dow fell as much as 140 points earlier in the day.
The broader Standard & Poor’s 500 index fell 11.31, or 1%, to 1,091.94, while the Nasdaq composite index fell 16.62, or 0.8%, to 2,172.99.