Dow closes down 193 on `a tough day'

Loss completes erasure of 447-point gain Monday

Nasdaq and S&P also drop

Analysts attribute decline to weak economic reports

August 03, 2002|By Eileen Ambrose and Bill Atkinson | Eileen Ambrose and Bill Atkinson,SUN STAFF

Rattled by more economic numbers that showed the economy is slowing, the Dow Jones industrial average fell 193.49 points yesterday, dampening expectations that the worst of the bear market is over and an economic recovery is around the corner.

The Dow, an index of 30 blue-chip stocks, was down 304 points during trading, but firmed in the last hour to close at 8,313.13, off 2.27 percent. The index is down 17 percent for the year. The loss capped off a week that started off promising, with the Dow gaining 447.49 points Monday. That gain was erased by yesterday's closing.

"It was a tough day, quiet but difficult," said Andy Brooks, head of equity trading for T. Rowe Price Associates in Baltimore. "It was down from the get-go and made an attempt to rally and couldn't really do it."

The decline was felt in most sectors, although investors put dollars in so-called defensive stocks, such as pharmaceuticals and food companies, that consumers continue to buy in good and bad times, analysts said.

Indexes fell across the board.

The technology-laden Nasdaq composite index fell 32.08 points, or 2.51 percent, to 1,247.92. And the broader benchmark Standard & Poor's 500 index dropped 20.42 points, or 2.31 percent, to 864.24.

Both of these indexes are mired in a bear market, usually defined as a 20 percent drop or more from its peak. For this year alone, the Nasdaq is down 36.02 percent, and the S&P 500 is off 24.72 percent.

The markets ended the week mixed.

The Dow advanced 0.6 percent, while the Nasdaq fell 1.1 percent and the S&P rose 1.3 percent.

Declining issues led advancers nearly 3-to-1 on the New York Stock Exchange. Volume came to 1.55 billion shares, compared with 1.66 billion shares Thursday.

Analysts blamed yesterday's decline on a series of weak economic numbers released this week.

The country's growth rate slowed in the second quarter to 1.1 percent, the Commerce Department said Wednesday. And revised numbers showed that last year's recession, which began in March, was worse than thought because the economy contracted in three quarters of last year.

A report Thursday showed that manufacturing activity grew more slowly in July than the month before, falling below analysts' expectations.

And yesterday, the Department of Labor reported that the unemployment rate held steady at 5.9 percent in July, but companies added only 6,000 jobs, or one-tenth of what was expected.

"We had wet-blanket economic news today," said Al Goldman, chief market strategist for A.G. Edwards & Sons in St. Louis. "The unemployment news wasn't a shock. It was mildly disappointing."

Said Tom Schrader, senior vice president of listed trading at Legg Mason Wood Walker Inc. in Baltimore: "In the long run, the market turns on earnings, and the earnings turn on the economy. With the economy showing slowness here, that's got people concerned."

Speculation on Fed

There also was speculation yesterday that Federal Reserve policy-makers will lower interest rates when they meet this month.

Last year, the Fed cut short-term interest rates 11 consecutive times to stimulate the economy.

"If they did lower rates again, that would send a message that, `The Fed is worried, so I better be worried,'" Schrader said.

One characteristic of this market has been its sharp swings. In the dozen trading days from July 8 to July 23, the Dow plunged 17.9 percent, losing 1,677.16 points. Six days later, it had gained 1,034.25 points, or 13.4 percent.

"Volatility has increased dramatically, particularly in the last couple of months," said Thom Melcher, chief investment officer at Philadelphia-based PNC Advisors. "It is like a roller coaster. Much like roller-coaster technology, the hills get bigger and bigger."

A growing number of economists are worried that the chances of the country slipping into recession for a second time are increasing. They are concerned that the stock market's steep slide could wreck consumer confidence and any chances that corporations will begin spending on capital goods like computers and software and hiring new employees.

Stephen S. Roach, chief economist at Morgan Stanley in New York, said in a report this week that the U.S. economy is "right on the brink of another recessionary relapse - the dreaded double dip."

Roach said the economy is at "stall speed" and "all it would take would be another shock to trigger the double dip."

Several events could push the economy back into recession. They include: intensified corporate cost-cutting that triggers a new round of layoffs, a credit crunch, a downturn in housing markets or a terrorist attack, Roach said.

"Just as it was the case in late 2000, it wouldn't take much to push a stalling U.S. economy over the brink and back into recession," he said.

Elsewhere on the broad market, the Russell 2000 index, a benchmark of small-cap stocks, fell 12.76, or 3.3 percent, to 376.45 and the Wilshire 5000 total market index jumped 59.91 to 14,751.64.

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