By Ariana Eunjung Cha and Sonja Ryst
Washington Post Foreign Service
Friday, August 13, 2010
U.S. stocks fell Thursday for the third straight day as weak economic data and disappointing corporate earnings reports continued to feed investors' fears that the global recovery has stalled.
After falling nearly 110 points in early trading, the Dow Jones industrial average recovered somewhat to close at 10,319.95, down 58.88 points, or 0.6 percent. The broader Standard and Poor's 500-stock index fell 5.86, or 0.5 percent, to 1083.61, and the technology-heavy Nasdaq composite index slid 18.36, or 0.8 percent, to 2190.27.
The declines followed a 265-point plunge in the Dow on Wednesday -- triggered by a Federal Reserve move to boost growth that some investors took to mean the central bank's view of the recovery had dimmed. All three major U.S. stock market indicators are in the red for the year.
The U.S. Labor Department said Thursday that the number of people filing unemployment claims jumped unexpectedly to a level not seen since February. The foreclosure-listing firm RealtyTrac said the number of homes repossessed in July surged 6 percent from a year ago. And Cisco Systems, Sara Lee and Kohl's all disappointed investors with revenue estimates that fell short of analysts' forecasts.
"There's an increasing amount of palpable fear that there's not going to be organic growth," said Jim Grefenstette, senior portfolio manager at Federated Investors. "We think there'll be more headwinds than tailwinds, and that'll continue to drive growth down for the economy and for earnings."
Grefenstette said consumers have been paying down their credit card debt and shunning larger mortgages. Without debt-related spending driving economic growth, he said, it's harder to feel good about the outlook for corporate profits.
"The great debate is how long the consumer will feel it necessary to restrain spending and what effect will that have on top-line [sales] growth," said Dan Greenhaus, Miller Tabak's chief economic strategist. "We don't know."
Investors have been scrutinizing macroeconomic data all week to try to figure out whether the recovery is holding steady -- or whether the economy is on the brink of another recession.
The Labor Department said Thursday that initial claims for jobless benefits -- an indicator economists use to measure the pace of layoffs and businesses' willingness to hire -- rose to a seasonally adjusted 484,000. Analysts had been expecting a small drop.
Bernie McGinn, founder and chief executive of McGinn Investment Management in Alexandria, said that despite the negative corporate data over the past 24 hours, "in terms of the doomsday scenario, it's difficult to fathom with the amount of cash these companies have."
McGinn said he doesn't think that unemployment will drop during the next few months but that at some point companies will have to start using their piles of cash to resume hiring.
There was more bad news from the housing sector. RealtyTrac, an Irvine, Calif.-based company that tracks foreclosure data, said lenders repossessed 92,858 homes in July -- the eighth straight month the pace has increased.
The Obama administration has launched a number of programs to help struggling homeowners -- including an additional $3 billion toward that goal Wednesday -- but those efforts have so far brought permanent relief to a relatively small number of borrowers.
Overseas, further signs of economic malaise appeared on Thursday. In Greece, which is still grappling with the fallout of its debt crisis, the government said the economy shrank 1.5 percent in the second quarter of 2010 compared with the first quarter. In India, industrial production fell to a 13-month low in June.
"The market is again factoring in the possibility of a double-dip recession," said Hank Smith, chief investment officer at Haverford Investments in Radnor, Pa.
From Washington Post Foreign Service published on Friday, August 13, 2010