US investors abandoned blue chips and other large-cap stocks today as a lower-than-expected consumer confidence report fed into Wall Street’s fears of an economic slowdown.
The selloff overshadowed a technology sector rally prompted by robust earnings from Dell.
Energy and utility stocks saw the brunt of the selling, as the week’s sharp decline in oil prices led investors to shift their assets out of these sectors - which had led the market’s gainers for much of the year. Treasury bonds benefited as investors sought less risk, and a few investors still took a chance on the tech sector, which saw a boost from strong earnings by Dell.
Blue chips and other stocks were also held back by the University of Michigan’s consumer sentiment index that showed a larger-than-expected drop in confidence. The May index came in at 85.3, substantially lower than the 88.3 expected on Wall Street.
“The consumer numbers out there were very frightening,” said Chris Johnson, manager of quantitative analysis at Schaeffer’s Investment Research in Cincinnati. “The consumer is in the driver’s seat in this economy, and a lot of big names depend on healthy consumer spending.”
The Dow fell 49.36, or 0.48%, to 10,140.12. The Dow had fallen more than 100 points in afternoon trading before rallying at the close.
Broader indicators were mixed. The Standard & Poor’s 500 index was down 5.31, or 0.46%, at 1,154.05, while the tech-focused Nasdaq composite index gained 12.92, or 0.66%, to close at 1,976.80.
Wall Street’s nervousness was apparent in the Treasury bond market, where investors were turning to safer Treasurys amid lingering concerns following the downgrade of big vehicle manufacturers’ debt.
The yield on the 10-year Treasury note fell to 4.13% from 4.17% late on Thursday – the lowest yields since mid-February.
The dollar made strong gains against most major currencies, especially the euro, which fell to a seven month low against the dollar.
The Dow and S&P 500 finished the week substantially lower, while the tech rally pushed the Nasdaq to a small gain. Despite lower oil prices and a spate of strong economic data, an earnings warning from Wal-Mart Stores enhanced investors’ nervousness about the economy, prompting two triple-digit losses for the Dow.
For the week, the Dow lost 1.98%, the S&P fell 1.48% and the Nasdaq gained 0.48%.
After falling substantially most of the week, oil prices pushed modestly higher in late trading, with a barrel of light crude settling at US$48.67 (€38.58), up 13 cents, on the New York Mercantile Exchange.
The overall drop in oil prices this week, however, prompted many investors to abandon the utility and energy stocks that led the market through much of this year.
Among utilities, Exelon lost 1.75 to 45.25 and TXU tumbled 3.80 to 77.07. Energy companies Williams Cos fell 56 cents to 16.40 and XTO Energy dropped 1.40 to 27.50.
“It’s a kind of Friday the 13th reversal of fortune, where you’re seeing oil drop off and the tech sector take off,” said Bryan Piskorowski, market analyst at Wachovia Securities. “I think you’re seeing some money rotation, some rebalancing going on, and that could set the stage for us to go higher.”
Dell led the tech sector rally, climbing 2.72 to 39.33 after it reported a 28% jump in profits.
Investors saw the computer maker’s strength as a sign that companies were still making investments in computers and other big-ticket items. Dell also forecast higher revenue growth for the current quarter, which led to an upgrade by analysts at UBS.
Luxury retailer Tiffany said strong sales in the US helped offset weak Japanese sales, resulting in a 9% hike in profits from last year. The company beat analysts’ expectations by 3 cents per share. Tiffany nonetheless lost 47 cents to 29.30 as consumer spending concerns took their toll on retailers.
Declining issues outnumbered advancers by nearly 5 to 2 on the New York Stock Exchange, where volume totalled 1.72bn shares, compared with 1.58bn at the same point on Thursday.
The Russell 2000 index of smaller companies was down 4.87, or 0.83%, at 582.02.