Stocks fall as employment worries escalate
By Madlen Read
AP Business Writer
By Madlen Read
NEW YORK (AP) — Fresh worries about escalating unemployment, sparked by aluminum producer Alcoa Inc.'s decision to slash jobs, sent stocks sharply lower on Wednesday.
Alcoa said late Tuesday it is reducing its global work force by about 13,500, or 13 percent, by the end of the year and lowering total output by more than 18 percent annually. The announcement was a harsh reminder that the economy both domestically and abroad remains in rough shape.
Alcoa's news also underscored growing anxiety over the Labor Department's upcoming report Friday on the December job market. Moreover, investors got a disappointing harbinger Wednesday in the form of the ADP National Employment Report, an unofficial gauge that the market has been increasingly monitoring as U.S. job losses mount. The report said private sector employment fell by 693,000 in December, worse than expected.
When people lose their jobs, they tend to spend less and fall behind on their debt payments. Investors fear that further declines in consumer spending will prolong the recession.
"People are concerned with the employment report coming out on Friday," said Scott Fullman, director of derivatives investment strategy for WJB Capital Group in New York. "The market has shrugged off some bad news recently, and it's starting to get to the point where it can't do that anymore."
The Dow Jones industrial average has rallied about 20 percent since its multiyear lows in late November 2008, and the Standard & Poor's 500 index has surged nearly 25 percent.
"We've had a big move," Fullman said. "What we're looking at now is just people getting a little cautious here."
In the first half hour of trading, the Dow dropped 118.28, or 1.31 percent, to 8,896.82. The Standard & Poor's 500 index fell 13.25, or 1.42 percent, to 921.45, while the Nasdaq composite index fell 28.75, or 1.74 percent, to 1,623.63.
Shares of Pittsburgh-based Alcoa tumbled 70 cents, or 5.8 percent, to $11.42.
On Tuesday, Wall Street overcame gloomy economic readings to finish with a moderate advance. The market's economic worries had been calmed a bit in recent days by President-elect Barack Obama's proposal to slash taxes and help businesses. The stimulus package could cost as much as $775 billion, though, and Obama said Tuesday the nation could face trillion-dollar deficits "for years to come."
Bond prices were mixed Wednesday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 2.48 percent from 2.47 percent late Tuesday. The yield on the three-month T-bill, considered one of the safest investments, edged lower to 0.11 percent from 0.14 percent.
The Treasury plans to auction a record $30 billion in three-year notes on Wednesday.
The dollar fell against other major currencies. Gold prices also fell.
Crude oil prices slipped 96 cents to $47.62 a barrel on the New York Mercantile Exchange.
In Asian trading, Japan's Nikkei stock average rose 1.74 percent, and Hong Kong's Hang Seng index fell 3.37 percent. In afternoon trading in Europe, Britain's FTSE 100 fell 2.31 percent, Germany's DAX index fell 1.37 percent, and France's CAC-40 fell 1.14 percent.