Stocks plummet on economic news
Stocks fell hard for a second day Wednesday, with the Dow Jones industrial average losing more than 120 points after a surprisingly weak reading on the service sector of the economy raised concerns about the continuing impact of higher energy prices.
Equities opened lower after Tuesday’s selloff, then fell further when the Institute for Supply Management reported that its non-manufacturing business index, which measures the service sector, dropped to 53.3 in September from 65.0 in August. While any reading above 50 indicates the economy is expanding, the sharp drop in the index was unexpected, following a strong report in manufacturing earlier this month.
Wednesday’s reading, which indicated supply managers were worried about higher energy costs, spooked investors already nervous about the effects that rising oil and gas prices will have going forward.
The market was still mulling Tuesday’s comments from Dallas Federal Reserve Bank President Robert Fisher, who said inflation was nearing the high end of the Fed’s comfort zone — a clear signal that the Fed’s short-term interest rate hikes would continue. The higher prices for energy have been filtering into the rest of the economy.
Investors are also jittery about earnings season, which officially starts Monday. Some companies such as Clorox Co. have already begun to warn their earnings will not meet expectations.
“We need to get (earnings season) out of the way and see how companies are doing,” said Barry Berman, head trader for Robert W. Baird & Co. in Milwaukee.
The Dow Jones industrial average fell 123.75, or 1.19 percent, to 10,317.36. The decline followed a drop of 94.37, or 0.9 percent, on Tuesday.
Broader stock indicators were lower. The Standard & Poor’s 500 index fell 18.08, or 1.49 percent, to 1,196.39, and the Nasdaq composite index fell 36.34, or 1.7 percent, to 2,103.02.
Small caps, which are highly sensitive to interest rates, dropped sharply. The Russell 2000 index of smaller companies fell 18.86, or 2.84 percent, to 644.98.
A barrel of light crude settled at $62.79, down $1.11, on the New York Mercantile Exchange.
Bonds rose, with the yield on the 10-year Treasury note falling to 4.35 percent from 4.38 percent late Tuesday. The U.S. dollar was mixed against other major currencies in European trading. Gold prices fell.
Investors are facing a Wall Street nightmare: A slower economy and higher interest rates.
Those looking for signs of a slowdown are finding them. For instance, home equity lending at banks has slowed from a peak rate of $2 billion to $3 billion a week to “a trickle” of $100 million in the past several weeks, according to a Citigroup report.
“There’s just a lot of nervousness and cross currents,” Berman said.
Declining issues led advancers by more than 5 to 1 on the New York Stock Exchange, where volume was 1.74 billion, up from 1.55 billion during the same point of the pervious session.
Overseas, Japan’s Nikkei stock average fell 0.36 percent. Britain’s FTSE 100 fell 1.21 percent, Germany’s DAX index dropped 1.34 percent, and France’s CAC-40 fell 1.21 percent.