Stocks tumble on concerns about economy's strength
NEW YORK -- Stocks fell Thursday as investors grappled with concerns about the strength of consumer spending and the overall economy after warnings from J.C. Penney Co. jcp and Wells Fargo & Co. wfc
Investors are concerned that rising inflation — fueled by higher fuel prices — could move consumers to cut back their overall spending and also prevent the Federal Reserve from lowering interest rates further in the coming months. The Labor Department said Thursday its consumer price index rose 0.3% in October on high energy and foods costs, in line with September's increase and analysts' forecast.
A lackluster forecast from J.C. Penney also stirred some concern about the health of consumers as did downbeat comments from Wells Fargo.
Robert A. Dye, senior economist at PNC Financial Services, is concerned that readings on consumer prices and Wednesday's report on producer prices indicate the economy could start to feel pressure in coming months from higher energy costs as well as a weakening dollar.
"This number tells us that we might be concerned that the Fed might not have the leeway we thought it had a few months ago to ease the fed funds rate," he said, referring to the CPI report and the Fed's efforts to keep inflation in check.
The Dow Jones industrial average declined 120.96, or 0.91%, to 13,110.05. In the broader market, the Standard & Poor's 500 index fell 19.43, or 1.32%, to 1451.15, and the Nasdaq composite index fell 25.81, or 0.98%, to 2618.51.
Government bond prices rose. The yield on the 10-year Treasury note, which moves opposite its price, slid to 4.17% from 4.25% late Wednesday.
Oil prices slipped on the New York Mercantile Exchange, where a barrel of light, sweet crude fell 66 cents to $93.43. Gold prices fell as the dollar strengthened.
In other economic news, the number off workers filing for unemployment benefits rose 20,000 last week to 339,000, double what economists expected.
The Philadelphia Federal Reserve said regional manufacturing activity expanded in November at about the same "modest" pace seen in October. The bank's November business index rose to 8.2 from 6.8 in October.
In one bright spot, the market for U.S. short-term corporate debt known as commercial paper decreased by $3.6 billion in the week ended Wednesday, well below the $15.6 billion contraction seen a week earlier. The Federal Reserve figures appeared to boost investor sentiment about the state of the credit markets, which has been tight in recent months amid concerns about bad mortgage debt.
Investors also looked to corporate news. J.C. Penney reported a 9% drop in fiscal third-quarter profit on weak sales and cut its fourth-quarter outlook, indicating that housing market problems are taking a toll on shoppers.
Wells Fargo stock fell after its president and chief executive, John Stumpf, said the housing market is seeing its steepest decline since the Great Depression. The bank has boosted its loss provisions in recent quarters to cover increasing defaults on mortgages and home-equity products. Still, the company has been able to avoid big write-downs that other banks have faced because it has little exposure to some complex financial instruments that have recently soured.
Investors also reacted to a Barron's report late Wednesday that a General Electric Asset Management bond fund has suffered losses in mortgage-backed securities. The General Electric ge unit is offering investors the option to redeem their holdings in the short-term institutional bond fund at 96 cents on the dollar. The losses in the bond fund raised concerns that the squeeze on credit markets could spread and hurt small investors..
Barclays Group bcs fell after its Barclays Capital investment unit became the latest financial institution to book a write-down on losses stemming from turbulent credit markets. The business took a $2.7 billion charge in the third quarter.
Ralcorp, a maker of private-label cereals, said it will buy Kraft Food's rah Post cereals division for $1.65 billion plus $950 million in debt.
Declining issues outnumbered advancers by more than 3 to 1 on the New York Stock Exchange, where volume came to 880.7 million shares.
The Russell 2000 index of smaller companies fell 10.87, or 1.39%, to 771.60.
Major stock indexes overseas slumped. Britain's FTSE 100 declined 1.13%, Germany's DAX index fell 1.49%, while France's CAC-40 shed 0.93%.
Japan's Nikkei stock average closed down 0.67% and Hong Kong's Hang Seng index fell 1.42%.