Jobless rise prompts Wall Street sell-off
Stocks fell today as lower-than-expected activity in the manufacturing sector and a slight rise in weekly jobless claims stifled investor enthusiasm after two days of gains.
The Dow Jones industrials lost more than 100 points, while tech stocks fell on concerns about Intel and Yahoo!
The decline did not alarm analysts too much, as trading volume was lower ahead of the Independence Day weekend. After the market’s muted reaction to a widely expected rise in interest rates on Wednesday, many investors were looking ahead to the government’s monthly labour report due tomorrow.
“I would not read too much into this weakness today, because there’s a real lack of engagement overall,” said Brian Belski, market strategist at Piper Jaffray.
“I don’t think there’s any sense of urgency right now, today, ahead of the employment report, post the interest rate decision and in a holiday week, to put a lot of new money to work.”
The Dow closed down 101.32, or 1%, at 10,334.16.
The broader gauges were also lower. The Nasdaq composite index sank 32.24, or 1.6%, to 2,015.55, largely on weakness in the semiconductor sector. The Standard & Poor’s 500 index fell 11.86, or 1%, to 1,128.98.
The Labour Department found a slight rise in the number of people who signed up for jobless benefits last week – economists had forecast a decrease in claims.
Separately, the Institute for Supply Management said its manufacturing index declined to 61.1 in June, down from 62.8 in May. The new reading was somewhat lower than the 61.5 forecast by analysts. Still, the gauge has been above 50 since June of last year, indicating that manufacturing activity is still in an expansion.
Investors reacted positively yesterday to the Federal Reserve’s move to raise rates by 0.25% – the first hike in four years – largely because the decision had been so widely expected. Now they are free to focus on corporate profits but the prospect of a strong second quarter may be offset in the weeks ahead by continued anxiety about Iraq, inflation, terrorism threats and the presidential election.
Adding to inflationary worries today, August crude oil futures surged though at the end of the session they were down 10 cents at 38.64 dollars a barrel.
That, combined with the less-than-stellar economic news and a handful of brokerage downgrades on key stocks, contributed to the day’s profit-taking.
“Once you get that kind of move in oil, obviously you’re going to get out of equities,” said Brian Williamson, a trader with The Boston Company Asset Management. “That’s probably adding a little fuel to the fire on the sell side. Any inflation in the market at all is not good … and higher energy prices are not good for stocks in general.”
A negative remark from Morgan Stanley on Intel pressured the tech sector. Yahoo! Also declined after Smith Barney cut its rating to a “hold” from a “buy”, saying the stock had gotten too expensive, having climbed 63% since mid-March.
Declining issues outnumbered advancers by almost 2 to 1 on the New York Stock Exchange.
The Russell 2000 index, which tracks smaller company stocks, was down 9.09, or 1.5%, at 582.43.
