Stocks were hammered again Thursday–sending the benchmark Standard & Poor’s 500 index to its lowest level since September.
The slide reflected bad news from semiconductor giant Intel and fresh worries over the terrorism threat to the United States.
After the close of regular New York trading, Intel trimmed its second-quarter sales forecast, confirming a cautious outlook expressed by a Merrill Lynch analyst earlier in the day.
Semiconductor stocks had rallied in early May, fueling a brief respite for the whole market from this year’s selling pressure. Following Intel’s after-hours disclosure, shares fell to just over $24, an eight-month low.
On the terrorism front, President Bush was scheduled to speak to the nation Thursday evening about upgrading his homeland security agency to a Cabinet-level department.
The scheduled announcement highlighted the fact that five months ago most professional investments strategists dismissed war on terrorism as a factor in their generally upbeat forecasts for the stock market in 2002.
By declaring an “urgent mission” of “securing the American homeland and protecting the American people,” Bush deepened fears that the country is not secure–a sentiment reinforced in recent weeks by reports of bureaucratic snafus and turf battles among federal investigative agencies.
Terrorism-related spending by Congress, which has added a number of unrelated pet projects to the legislation, has helped turn federal budget surpluses into widening deficits.
Meanwhile, fresh revelations about possible corruption between one-time Wall Street darling Tyco International and its recently departed chief executive officer, Dennis Kozlowski, intensified investor skepticism.
The market affliction known as Enronitis, after the collapsed energy trader, has become Tycosis. Analysts say they have no idea what investigators probing Kozlowski’s lavish art purchases, in which he allegedly evaded $1 million in sales taxes and may have used loans from Tyco, will find.
The Dow Jones industrial average fell 172.16 points, to 9624.64. All but three of the 30 Dow industrials–McDonald’s, Microsoft and AT&T–lost ground. Intel dropped $1.18, to $27, in the regular Nasdaq session.
The broader Standard & Poor’s 500 index lost 20.75, or 2.0 percent, to 1029.15, the lowest close since Sept. 27. The index, considered to be the benchmark for the U.S. stock market, hit a low of 944.75 on Sept. 21, as Wall Street reacted to the Sept. 11 terrorist attack.
The Nasdaq composite index fell 40.38, or 2.5 percent, to 1554.88. The Russell 2000 index of small-company stocks dropped 9.75, or 2.0 percent, to 465.29.
In a rare event, trading volume on the New York Stock Exchange virtually equaled trading volume of the Nasdaq market. Nasdaq volume routinely exceeds NYSE volume because a purchase and a sale of shares by Nasdaq dealers are each counted as trades.
According to Reuters, NYSE trading volume reached 1.61 billion shares Thursday, while Nasdaq volume totaled 1.62 billion. Thursday’s close call may indicate investor disgruntlement with the more speculative stocks on the Nasdaq market.
The stock market volatility index tracked at the Chicago Board Options Exchange jumped more than 11 percent to the highest level since Feb. 7.
Losing stocks outnumbered winners by more than 2-to-1 on the NYSE and Nasdaq markets.
Treasury securities rallied as stocks sank. The yield on 10-year Treasury notes dropped below 5 percent, to the lowest level since early March.
Gold resumed its recent rally, adding $3.70 an ounce, to $325.80, in New York futures trading.
The dollar sank to a 16-month low against the euro, reflecting international concerns about the state of the U.S. capital markets and indications that interest rates will soon move higher in Europe.
Another shoe: Given the multiple concerns already facing investors, Friday’s report on May job growth and unemployment could have an inordinate impact on Wall Street.
The range of forecasts of the growth in jobs from April to May is unusually wide–from no change to a strong 120,000 new jobs. May is the hardest month for economists to forecast job-related data, in part because of the start of summertime student employment, according to Stone & McCarthy Research Associates.
Moreover, the consensus forecast of a slight rise in the unemployment rate, to 6.1 percent from 6.0 percent, is complicated by statistical distortions caused by the government’s extension of unemployment benefits to 39 weeks from 26 weeks.
Beyond the statistical issues, the absence of growth in business investment continues to crimp chances for a significant rebound in jobs, according to Moody’s Investors Service.
Thursday’s report of a drop in first-time claims for unemployment benefits does not mean the worst is over for American workers. The number of workers receiving unemployment checks remains historically high.
“Capital spending and employment tend to move in the same direction,” said Moody’s. “As long as a wobbly equity market impedes any recovery in capital spending, a scaling back of business expansion plans will curb hiring activity.
“Indeed, declining share prices might put more pressure on companies to widen profit margins via cost-cutting that includes outright reductions in staff.”
In other words, the threat of a double-digit recession remains, despite general positive economic reports in recent weeks.
Meanwhile, the National Bureau of Economic Research, which declared last November that a recession began last March, has yet to declare the end of the recession–partly because of uncertainty about the employment outlook.
