Stocks fall on indications of slowdown in global economy
NEW YORK — As evidence of a slowing global economy grows, investors are showing caution just one week after U.S. stocks set a record.
Stocks fell on lackluster earnings from Bank of America and an apparent drop in demand for Apple's iPod and iPhone dragged financial and technology stocks lower. New signs of weakness in Europe, where car sales are plunging and unemployment is rising, weighed on the market.
On Monday, stocks sank after China reported economic growth that was slower than economists had expected. Metals, energy and other commodities have been hit hard this week and that dragged down the stocks of miners and drillers and companies that provide services to them. Gold fell the most in 30 years.
The Dow Jones Industrial average fell 138 points, or 0.9 percent, to 14,618.59 on Wednesday, wiping out most of the gain it made Tuesday. The Dow, which reached a record of 14,865 last Thursday, is down 1.7 percent this week from slumping 265 points on Monday.
The Standard & Poor's 500 index dropped 22 points, or 1.4 percent, to 1,553 and is 2.2 percent lower since the opening bell on Monday. The S&P is 2.5 percent below its high of 1,593.
Energy companies and miners fell as commodity prices extended their declines.
The price of crude oil dropped for the fourth day in five, falling 2.3 percent to $86.68 per barrel, based on expectations that global demand will fall. Copper fell to an 18-month low of $3.19 a pound.
As stock prices sank, investors sought the safety of bonds. The yield on the 10-year Treasury note, which moves inversely to its price, fell to 1.70 percent from 1.73 percent.
Despite the big drops, the Dow is still 11.6 percent higher this year, the S&P 500 index 8.8 percent. And while falling energy prices may hurt energy stocks now, in the long run, they should put more money into the pockets of consumers and drive spending.
Stocks surged during the first three months of the year on optimism that a recovery in the housing market would boost the economy. But the stock market has struggled this month amid reports of weak hiring and retail sales.
“You've had numerous economic data points that have been, not really disastrous, but not really as robust as people might like,” said Cam Albright, director of asset allocation at Wilmington Trust Investment Advisors. “When you have a market as extended as this, you almost need perfect information to make it continue to go up.”
Reports this week have added to a picture of slowing global growth.
New car sales in Europe fell 10 percent in the first quarter, the European automakers association said as high unemployment saps demand for big purchases. Britain said that unemployment rose to 7.9 percent during the three months ending in February, an increase of 0.2 percent from the previous three months.
On Tuesday, the International Monetary Fund lowered its outlook for global growth this year to 3.3 percent from 3.5 percent, saying government spending cuts will slow the U.S. and European economies.
Bank of America fell 4.7 percent to $11.70, leading a broad decline in financial stocks, after reporting a first quarter profit of $2.3 billion that fell short of analysts' expectations.
The Nasdaq composite index fell 59.96 points, or 1.8 percent, to 3,204.
Apple, which makes up 8 percent of the index, slumped 5.5 percent to $402.80, after a supplier hinted at a slowdown in iPhone and iPad production.
Corporate earnings for the first quarter suggest that growth has been slow and steady, said Kevin Mahn, president of Hennion and Walsh Asset Management. Consumers and businesses are still reluctant to ratchet up spending.
Analysts expect first-quarter earnings to rise by 1.6 percent, compared with growth of 7.7 percent in the fourth quarter, according to data from S&P Capital IQ. So far, 56 companies have reported earnings this year; 35 have beaten expectations.