Investors worried about another record high in oil prices and the prospects of a disappointing July job growth report sent stock prices plunging Thursday.
The Dow Jones industrial average closed below the 10,000 mark for the third time in two weeks after plummeting more than 163 points, its second-largest drop of the year.
“There’s a negative tone that has been brought about by big dissatisfaction about what’s going on Iraq and the fear of the terrorist situation,” said Chicago money manager Carl Birkelbach.
Bill Hummer, of Chicago-based Wayne Hummer Investments, called the day’s market action “a panic attack.”
“I feel it to be irrational and unjustified,” Hummer said, citing upbeat corporate profit reports and outlooks, historic low interest rates and a stronger dollar.
The Dow sank 163.48 points, or 1.6 percent, to 9963.03. All but one of the 30 Dow industrials, Hewlett-Packard, lost ground. The Dow fell 168 points on March 11.
The Standard & Poor’s 500 index dropped 17.93, or 1.6 percent, to 1080.70, a new low close for the year.
The Nasdaq composite index and the Russell 2000 index of small-company stocks also hit new lows for 2004.
The Nasdaq slid 33.43, or 1.8 percent, to 1821.63. The Russell 2000 fell 10.31, or 1.9 percent, to 532.36.
Treasury bonds closed higher for the seventh straight day, as traders interpreted the latest run-up in oil prices as a threat to economic growth, not a harbinger of inflation.
Indicators of stock and Treasury bond market anxiety, tracked by the Chicago Board Options Exchange (stocks) and Merrill Lynch (Treasuries), shot to two-month highs.
The principal factors roiling markets are oil prices and job-growth forecasts.
Market analysts differ sharply on the impact of this summer’s record oil price spurt.
Oil for September delivery rose $1.58 a barrel Thursday, to $44.41, a record closing high in futures prices.
An analysis published Thursday by Sam Stovall, chief investment strategist at Standard & Poor’s, said stock market reactions to surprising jumps in oil prices tend to be pretty much what you’d expect.
S&P’s grouping of energy stocks has climbed nearly 40 percent in the last 12 months, compared to 12 percent for the stock market as a whole, Stovall noted.
“Such sharp upward moves are frequently followed by quick declines,” he concluded.
But there was no sign that the stock market, beyond the energy sector, rises or falls historically because of oil price shocks, Stovall reported.
Nonetheless, retailing stocks fell Thursday, as traders took to heart warnings by major retailers that higher gasoline prices are thinning out consumers’ pocketbooks. Wal-Mart Stores dropped $1.15, to $52.05. Home Depot lost 61 cents, to $32.98.
Meanwhile, an 11th-hour debate erupted among economists and market professionals about whether the July payroll growth number will exceed or fall short of the analysts’ consensus estimate, which is between 228,000 and 240,000.
The monthly jobs data are scheduled to be released by the Labor Department on Friday morning.
An auction of options betting on the payroll growth number conducted Thursday afternoon yielded a consensus of 239,400 jobs among professional traders. But the bets covered a wide range, from 175,000 to 350,000.
“The thing that is strange about this is that all of the outcomes had a very similar probability,” said Bill Cassano, a vice president at Goldman Sachs economic derivatives team, which conducts the auction along with Deutsche Bank.
“The market is forecasting the same number as the economists, but it has much less conviction about it,” Cassano said.
Players in the auction began the day bidding above the ultimate consensus number, but by the end of the day they were bidding below the final consensus, he added.
Monthly payroll growth numbers will have great economic and political overtones from now until the November election.
Last month’s jobs report for June–112,000 new jobs were created–was unexpectedly weak. Federal Reserve policymakers might hold off on a second increase in short-term interest rates if Friday’s number is once again well below expectations.
A number much greater than 240,000 could bring the recent bond market rally to a swift halt and prompt the Fed to boost short-term rates by a half-point, to 1.75 percent, when policymakers meet Tuesday.
After Friday’s jobs report, there will be just two more monthly reports to indicate whether President Bush is likely to close the job growth deficit of his administration.
The Bush and Kerry camps will scramble early Friday to react to the latest number.
Despite the midsummer excitement about oil and jobs, trading volume remains weak, reflecting vacations and a general malaise on Wall Street.
New York Stock Exchange trading volume reached 1.39 billion shares. Losers outnumbered winners by about an 8-3 ratio.
Nasdaq trading volume totaled 1.53 billion shares, as losers topped winners by an 11-4 ratio.
