Stocks Slump on Economic Worries
U.S. stocks closed broadly lower Tuesday, pressured by profit taking on the eve of the second-quarter corporate earnings season, which begins on Wednesday with results from Alcoa (AA).
Worries about the economy held sway as Obama adviser Laura Tyson talked about a potential second government stimulus plan. The market has been retreating lately from its three-month surge based on speculation economy would recovery later this year. Traders are now worried the recovery will be slow.
Tech and energy shares were among the biggest losers, with the latter group weighed down by lower crude oil prices as investors worried that the weak economy will curb demand for commodities.
On Tuesday, the 30-stock Dow Jones industrial average finished lower by 161.27 points, or 1.94%, at 8,163.60. The broad Standard & Poor's 500-stock index was down 17.69 points, or 1.97%, at 881.03. The tech-heavy Nasdaq composite index fell 41.23 points, or 2.31%, to 1,746.17.
On the New York Stock Exchange, 24 stocks were lower in price for every seven that advanced. Breadth on the Nasdaq was 20-6 negative.
Treasuries were up after a $35 billion auction of three-year notes. The dollar index was higher. Gold futures eased.
There were no major economic reports scheduled for release Tuesday. Traders were awaiting second-quarter earnings reports for guidance.
In company news Tuesday, the Justice Dept. has begun looking into whether large U.S. telecommunications companies such as AT&T Inc. (T) and Verizon Communications Inc. (VZ) are abusing the market power they have amassed in recent years, according to people familiar with the matter. The review, while in its early stages, is an indication of the Obama administration's aggressive stance on antitrust enforcement, according to the article.
Shares of IntercontinentalExchange (ICE) and CME Group (CME) were down Tuesday after the Commodities Futures Trading Commission (CFTC) announced that hearings will be held this summer to consider position limits for commodities of finite supply. Also, the CFTC may mandate increased transparency about the nature of market participants.Goldman Sachs Group (GS) may lose its investment in a proprietary trading code and millions of dollars from increased competition if software allegedly stolen by a former employee gets into the wrong hands, a prosecutor said. Bloomberg News reports Sergey Aleynikov, an ex-Goldman Sachs computer programmer, was arrested July 3 after arriving at Liberty International Airport in Newark, New Jersey, U.S. officials said. Aleynikov, 39, who has dual American and Russian citizenship, is charged in a criminal complaint with stealing the trading software. Teza Technologies, a Chicago-based firm co-founded by a former Citadel Investment trader, said it suspended Aleynikov, who started there on July 2.Discover Financial Services (DFS) announced that it has commenced an underwritten public offering of $500 million of its common stock. S&P Equity Research said it believes the purpose of the offering is for the repayment of TARP funds.
In economic news Tuesday, Laura D'Andrea Tyson, a member of the panel advising President Obama on tackling the economic crisis, said the United States should be planning for a possible second round of fiscal stimulus to further prop up the economy after the $787 billion rescue package launched in February. Addressing a seminar in Singapore, Tyson said she felt the first round of stimulus aimed to prop up the economy had been slightly smaller than she would have liked and that a possible second round should be directed at infrastructure investment.
The American Bankers Association said soaring U.S. unemployment and a shrinking economy drove delinquencies on credit card debt and home equity loans to all-time highs in the first quarter as a record number of cash-strapped consumers fell behind on their bills. Reuters said the ABA said delinquencies on the value of all card debt soared to a record 6.60% from 5.52% in the fourth quarter as more cardholders relied on plastic to meet day-to-day expenses. Late payments on home equity loans rose to 3.52% from 3.03%, and on home equity lines of credit climbed to 1.89% from 1.46%. A broader gauge showing late payments on eight categories of loans rose for a fourth straight quarter to a new record, edging up to 3.23% from 3.22%.
Group of 8 leaders will agree to fight trade protectionism and mobilize billions over the next three years to boost agricultural investment in the developing world, a draft of the communique said. The summit of the world's leading industrialized nations will convene in L'Aquila, Italy, on Wednesday through Friday in talks that will focus on food security, aid, climate change, trade and the world economy. The draft, obtained by Reuters, calls for a conclusion of the Doha trade talks but does not set a timeline for finishing the negotiations. The draft does not include a figure for how much the G8 would commit to agriculture investment because it is still under discussion, although aid sources said it could be as much as $15 billion.
German manufacturing orders rose 4.4% in May -- the biggest increase since June 2007 and the third consecutive monthly gain, the Economy Ministry said. The ministry said with orders rising across the industrial sector and with demand coming from both domestic and export markets, the chances of stabilization had risen.
British manufacturing output fell 0.5% in May, vs. expectations of a 0.2% rise. April's figures were revised down to show no change instead of the 0.2% rise initially reported. On the year, factory output fell 12.7%.
France's trade deficit narrowed in May to €2.718 billion from an upwardly revised €3.841 billion in April. Exports rose to €28.039 billion from €26.828 billion previously. At the same time, imports were little changed at €30.757 billion compared with €30.669 billion in April.