A mixed economic picture sent stocks tumbling today, with the Dow Jones industrials falling more than 100 points after investors were unnerved by weakness in home sales, consumer confidence and manufacturing.
An upward revision in the fourth-quarter gross domestic product, meanwhile, raised worries about higher interest rates.
The GDP showed that the economy grew at an annual rate of 1.6%, much better than the 1.1% the Commerce Department initially estimated and beating the 1.5% economists predicted.
The GDP is the broadest measure of the economy’s performance – and one indicator of whether the economy continues to grow fast enough to prompt additional interest rate hikes by the Federal Reserve.
The day’s other data showed soft spots in the economy. Salesof existing homes fell for the fifth consecutive month in January, exacerbating some investors’ concerns that a fall in homes sales and remortgaging could choke off a source of wealth for consumers, slowing their spending.
Consumer confidence numbers reinforced that worry, dropping below analysts’ estimates in February, according to The Conference Board, a New York-based private research group. And a survey of Chicago-area purchasing managers fell unexpectedly; it is seen as a precursor of national manufacturing figures due to be released Wednesday.
“The GDP upgrade could put more pressure on the Fed,” said Jack Ablin, chief investment officer at Harris Private Bank. “At the same time, we’re losing ground with the consumer... from the perspective of today’s market, it’s a one-two punch.”
The Dow fell 104.14, or 0.94%, to 10,993.41.
Broader stock indicators also fell. The Standard & Poor’s 500 index fell 13.46, or 1.04%, to 1,280.66, and the Nasdaq composite index fell 25.79, or 1.12%, to 2,281.39, damaged by a sharp decline in Google.
Bonds edged higher, with the yield on the 10-year Treasury note falling to 4.55% from 4.59% late on Monday. The US dollar fell against other major currencies. Gold prices rose.
Crude oil futures rose. A barrel of light crude was quoted at US$61.41 (€51.49), up 41 cents, in trading on the New York Mercantile Exchange.
With scant earnings reports and few Federal Reserve speeches, economic data should continue to dominate the week, said Alexander Paris, economist and market analyst for Chicago-based Barrington Research.
“The problem is, investors have been going back and forth” about economic data, he said, pushing stocks higher on weak economic data one day, then lower on poor data another day.
“Sometimes they think a good economic report is good, other times they think it’s bad,” he said.
Another hurdle stock bulls face is “resistance levels”. As the Dow and S&P 500 flirted with 4 year highs, those highs have become, effectively, a ceiling for stock prices, with investors selling off their holdings when the indexes neared those highs.
Stocks ended February mixed. The Dow gained 128.55, or 1.18%; the S&P rose 0.60, or 0.05%; and the Nasdaq lost 24.43, or 1.06%.
So far in 2006, the Dow is up 3.55%, the S&P is up 3.67%, and the Nasdaq is up 4.62%.
Google tumbled 27.76 to 362.62 after Chief Financial Officer George Reyes told investors that growth at the online search leader was slowing. Reyes told a Merrill Lynch conference the company would have to find new ways to boost revenues.
Online closeout retailer Overstock.com fell 57 cents to 22.50 after it said it would restate previously reported financial results going back to 2002 to correct how it accounted for freight costs. The correction will lower the net loss reported in each affected annual period, Overstock.com said, while boosting inventory as of September 30, 2005 by US$3.5m (€2.93m).
BJ’s Wholesale Club, the third-largest US warehouse club retailer, rose 46 cents to 31.66 after it said profit in the latest quarter rose nearly 10%, helped by strong petrol sales.
Decliners led advancers by more than 2 to 1 on the New York Stock Exchange, where volume totalled 1.78bn shares, up from 1.44bn for the same time on Monday.
The Russell 2000 index of smaller companies fell 9.99, or 1.35%, to 730.64.