Stocks fall on trade, inflation worries
Investors preoccupied with inflation extended Wall Street’s decline Friday, selling stocks sharply lower in response to a ballooning U.S. trade deficit. The drop, which came in spite of a bullish sales outlook from Intel Corp., left the market substantially lower for the week .
Wall Street was unnerved as the Commerce Department reported that the trade deficit widened to $58.3 billion in January, the second highest level after November’s record reading. While the nation’s exports rose to record highs, imports rose even faster, leading investors to fear a loss of confidence in the dollar overseas. The dollar fell against most major currencies after the news came out.
The trade deficit sapped any momentum the market may have gained from Intel, a Dow Jones industrial, which reported late Thursday that sales for the current quarter would be at the higher end of previous forecasts. That bodes well for the tech sector and the overall economy, but inflation fears overshadowed the announcement.
“The economy is fairly good. Consumers are spending money. There’s strength there,” said Scott Wren, equity strategist for A.G. Edwards & Sons. “But with this trade deficit thing, the dollar, and oil prices where they are, the market’s going to need a little more convincing.”
The Dow fell 77.15, or 0.7 percent, at 10,774.36.
Broader stock indicators also moved sharply lower. The Standard & Poor’s 500 index was down 9.17, or 0.8 percent, at 1,200.08, and the Nasdaq composite index lost 18.12, or 0.9 percent, to 2,041.60.
Inflation worries dominated Wall Street this week, with higher oil prices prompting investors to cash in profits after the previous week’s strong gains. After the Dow came within 16 points of 11,000 on Monday, it fell more than 200 points by Friday’s close. For the week, the Dow lost 1.52 percent, the S&P 500 slid 1.4 percent and the Nasdaq fell 1.8 percent.
The dollar slipped lower on news of the widening trade gap, giving back earlier gains against the euro and Japanese yen. Bonds also fell as investors worried that the deficit and historically low dollar could still trigger inflation. The yield on the 10-year Treasury note rose to 4.55 percent, up from Thursday’s close of 4.47 percent.
Oil futures spiked higher as the dollar slipped through the morning, climbing back above $54 per barrel. A barrel of light crude settled at $54.43, up 89 cents, on the New York Mercantile Exchange.
Declining issues outnumbered advancers by about 8 to 5 on the New York Stock Exchange, where volume was moderate.
The Russell 2000 index of smaller companies was down 0.10, or 0.02 percent, at 626.84.
Overseas, Japan’s Nikkei stock average rose 0.5 percent. In Europe, Britain’s FTSE 100 closed up 0.4 percent, France’s CAC-40 gained 0.27 percent for the session, and Germany’s DAX index climbed 0.53 percent in late trading.