The stock market fell Thursday, sending the Dow Jones industrial average to its biggest loss in six weeks, as an unexpected decline in a gauge of Philadelphia-area manufacturing suggested economic growth is weakening.
The Dow retreated 79.96 points, to 11,533.23, the worst decline since Aug. 9. The Standard & Poor’s 500 index slid 7.15, to 1318.03. The Nasdaq composite index sagged 15.14, to 2237.75.
“As long as we are data-dependent, the market is going to be vulnerable to some significant swings,” said Alan Gayle, senior investment strategist and director of asset allocation for Trusco Capital Management.
Stocks retreated in afternoon trading after the Federal Reserve Bank of Philadelphia’s index shrank for the first time since April 2003. Earlier, The Conference Board’s index of leading indicators showed an economic slump might extend into next year.
“Investors are beginning to say, `Holy cow, this is really a slowdown,'” said Barry Ritholtz, chief investment officer of Ritholtz Capital Partners in New York. “That’s bad for earnings growth and stocks.”
On Wednesday, Fed policymakers left their target interest rates unchanged, and though it didn’t clarify whether it will continue to refrain from raising rates, signs the economy is slowing might leave it little choice.
“Investors are growing more concerned about the economy than the Fed,” Francois Trahan, the chief investment strategist at Bear Stearns & Co., wrote in a note. This is “a problem going forward since the economy is unlikely to improve anytime soon.”
The Philadelphia Fed’s general economic index declined to minus-0.4 from 18.5 in August, which was the highest level in 16 months. Readings below zero signal contraction. It was the biggest monthly drop since January 2001.
“This is a warning sign,” said Joel Naroff, president of Naroff Economic Advisors in Holland, Pa. “I don’t think we can jump to the conclusion yet that manufacturing has hit a wall, but we may be starting to see some greater slowdown than people expected.”
The Philadelphia Fed’s factory report showed orders and sales declined. The data were in stark contrast to a report from the New York Fed last week that showed a faster pace of growth as shipments and order backlogs increased.
“If this weakness in Philadelphia-area manufacturing is corroborated in other indicators for September, which we think is unlikely, then we will have to reconsider our view that the Fed will raise rates at one of the remaining meetings this year,” John Ryding, chief U.S. economist at Bear Stearns & Co., said in a note to clients.
Hewlett-Packard led the Dow’s slide after California’s attorney general said the company has stopped cooperating with his probe into how HP investigated boardroom leaks to the media. Shares of HP tumbled $1.91, or 5.2 percent, to $34.87.
Carnival Corp. rallied $1.17, to $44.75. The world’s largest cruise operator said third-quarter profit increased 4.3 percent, beating analysts’ estimates, on increased demand for trips to Alaska and Europe.
Bonds rose sharply, with the yield on the benchmark 10-year Treasury note falling to 4.64 percent from 4.74 percent late Wednesday.
