A morning rally in blue-chip stocks faded Monday afternoon, as Wall Street watched a standoff between the United States and China over a downed U.S. spy plane.
The Dow Jones industrial average fell 100.85 points, or 1.0 percent, to 9777.93, on moderate New York Stock Exchange floor volume of 1.21 billion shares. Earlier in the day, the Dow came within 8 points of breaking above the 10,000 mark; in the afternoon, it also dipped close to 9700 before staging a late rally.
Losing issues outnumbered winners by a 3-2 ratio among NYSE stocks.
A profit warning early in the session by American Express depressed some stocks at the opening of New York trading. American Express fell $1.51, to 39.71.
Meanwhile, an unexpected increase in the monthly index of business conditions compiled by corporate purchasing managers lifted share prices early in the day.
All bets were off, however, after President Bush demanded immediate U.S. access to the crew of a Navy spy plane grounded in China after a midair collision with a Chinese fighter jet.
The Nasdaq composite index lost 57.29, or 3.1 percent, to 1782.97. Nasdaq volume totaled 1.83 billion shares, with losing stocks topping winners by a 5-2 ratio.
Long-term Treasury securities lost ground, despite the U.S.-China standoff, as traders focused on the upbeat implications of the purchasing managers’ report. Some analysts declared that a recession in the U.S. economy now appears unlikely.
The price of crude oil fell to an 11-month low, $25.55 a barrel, during futures trading in New York. Oil for May delivery closed down 70 cents a barrel, to $25.59.
The dollar climbed to a 2 1/2-year high against the yen, reflecting the contrast between the gain in the purchasing managers’ index and a sharp drop in a survey of business conditions in Japan. The dollar also edged higher against the euro.
The next shoe: Readers of this column are accustomed to skepticism regarding the import of routine monthly economic reports and the buzz of expert forecasts that precedes them.
But Friday’s Labor Department data on job growth and unemployment in March deserve attention.
In recent weeks, economists and market analysts have frequently underestimated the strength in the economy in guesstimating the normal series of numbers.
From consumer confidence surveys to the latest report by the nation’s purchasing managers, the surprises have been generally on the upside.
Most of these numbers mean nothing to average American workers, for good reason. They are like vegetables in a stew that add flavor and substance collectively but boil down slowly over time to become unrecognizable in the broth.
The monthly unemployment rate is the beef. A jump in the March unemployment rate would send a shock wave from Wall Street to the White House, not to mention Congress and the Federal Reserve.
Economists surveyed by financial newswires expect that the March unemployment rate held steady from February, at 4.2 percent, or inched upward to 4.3 percent.
Either figure, which could come down to rounding off numbers, would mean that unemployment has held stable amid a sharp, swift downturn in business.
From the viewpoint of history, a 4.2 percent or 4.3 percent unemployment rate represents a benign level of joblessness.
Compelling headlines about recent corporate job cuts cannot be denied. But the jobless rate has held relatively steady for two years, reaching a 30-year low of 3.9 percent in September and October.
A jump in the March rate to 4.5 percent or more would be bad news, even though stocks could rally on hopes of an emergency interest rate cut by the Federal Reserve.
Many economists predict a 4.5 percent or higher rate later in the year. But a stable number Friday could create positive feedback on consumer confidence that would help silence the doomsayers.
Treasury auction: Interest rates fell again at Monday’s auction of 3- and 6-month Treasury bills.
The discount rate for 3-month bills was 4.12 percent, down from 4.20 percent at last week’s auction. The rate on 6-month bills fell to 4.02 percent from 4.12 percent last week. Both rates were the lowest since October 1998 during a global financial crisis.
The coupon equivalent rates at Monday’s auction were 4.23 percent for 3-month bills and 4.16 percent for 6-month bills.
