Stocks slump despite encouraging reports
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By Amy Baldwin
Associated Press
NEW YORK — Worried that Wall Street might have gotten ahead of itself, investors adopted a cautious strategy today, cashing in more profits from the market's recent rallies and giving the market's major indexes their biggest losses in a month.
The Dow Jones industrials sank by more than 100 points, falling for two straight days for the first time in a month. The heavy losses came despite two encouraging reports, one showing a drop in jobless claims and the other forecasting stronger-than-expected prospects for the economy.
Wall Street expected to see more profit taking, which took most stocks lower in yesterday's trading, as investors seek to preserve profits following more than three months of rallies.
"The market has had a nice run-up and certainly we are at levels here that you could say is priced to perfection," said Peter Cardillo, president and chief strategist of Global Partner Securities Inc.
The Dow closed down 114.27, or 1.2 percent, at 9,179.53, according to preliminary calculations.
It was the Dow's biggest one-day loss since May 19, when it slid 185.58. Today also represented the Dow's first multiple-day sell-off since a three-day decline that ended May 20.
The broader market also retreated. The Nasdaq composite index fell 28.55, or 1.7 percent, to 1,648.59, which was also its biggest one-day slide since May 19, when it forfeited 45.76 points.
The Standard & Poor's 500 index dropped 15.40, or 1.5 percent, to 994.69. The last time the S&P had a larger drop was May 19 when it gave back 23.53 points.
The downturn followed two positive economic reports, which analysts said was because the reports confirmed what investors were expecting of the economy and what they'd already factored into higher stock prices. The market, analysts said, was simply due for a pullback.
The Dow has risen 22 percent from where it stood on March 11, when the rallies began, while the Nasdaq has surged nearly 30 percent and the S&P has climbed 24.2 percent.
The Labor Department said new claims for unemployment benefits fell last week by a seasonally adjusted 13,000 to 421,000, a five-week low.
The Conference Board released its Composite of Leading Economic Indicators. The index, which serves to forecast economic activity in the next three to six months, rose by 1.0 percent in May, ahead of the 0.6 percent increase analysts' were expecting.
Stocks briefly turned positive following the Conference Board's news but the temptation to collect profits won over investors.
At midday, when stocks were already lower, the Philadelphia Federal Reserve reported on mid-Atlantic manufacturing activity, which is said rose modestly in June for the first time since February. The reading of 4.0 came in below analysts' expectations for 5.0 but nearly reversed last month's decline of 4.8.
The divergent reports from the Conference Board and the Philadelphia Fed made it difficult for investors trying to predict whether the Federal Reserve's Open Market Committee, meeting next week, would once again lower interest rates to stimulate the economy.
Analysts said investors were also taking a break from buying because they're bracing themselves for second-quarter earnings, which will be released starting next month.
