Dreary data send markets plunging

Consumer confidence, manufacturing output dip

April 16, 2005|By Jesus Sanchez | Jesus Sanchez,LOS ANGELES TIMES

Stocks nose-dived on Wall Street yesterday as lackluster reports on industrial activity and consumer confidence, along with disappointing earnings news from technology bellwether IBM, sent financial markets plunging for the third day in a row.

The Dow Jones industrial average dropped 191.24 points, or nearly 2 percent, to close at 10,087.51. It was the Dow's biggest one-day loss since May 2003.

Yesterday also marked the Dow's third consecutive decline of more than 100 points - the first time that has happened since late January 2003 - as the widely watched indicator tumbled to its lowest level in nearly six months.

Other financial indexes also posted major losses. The technology-heavy Nasdaq declined 38.56 points to 1,908.15, and the broader S&P 500 lost 19.43 to 1,142.62.

Investors ignored a decline in oil futures prices - which again were on the verge of falling below $50 a barrel - and some positive earnings reports. Instead, they focused on the most recent batch of economic reports, which seemed to point to a slowing economy.

Some analysts said they would not be surprised to see the Dow fall below 10,000 and continue to drop for some time.

"Investors seem to be looking for an excuse to sell instead of looking for an excuse to buy," said Chris Orndorff, head of equities at Payden & Rygel, a Los Angeles investment company.

Investors were unnerved by a Federal Reserve report detailing declines in manufacturing and other industrial production and by a Labor Department report showing higher oil costs driving up import prices and exacerbating Wall Street's chronic inflation worries.

Investors looking at the Fed's industrial output report also questioned whether higher energy and materials costs were also affecting manufacturing growth as well.

Overall industrial production rose 0.3 percent in March after a 0.2 percent increase in February, but the increase resulted solely from utility production that benefited from a colder-than-average month. Manufacturing and other industrial sectors showed losses for the first time in six months.

"Manufacturing momentum has slowed by more than expected in recent months, and, given the lack of momentum exiting [the first quarter], it is unlikely that [the second quarter] will see the 4 percent rate of growth that we have been forecasting," economic analyst Joshua Shapiro said in a research note for the consulting company MFR.

Strong earnings at General Electric Co. and Citigroup Inc. were overlooked yesterday, but analysts said earnings will be a key factor in rebounding from the recent sell-off.

Hopes for earnings

"Earnings are really the only hope for this market," said Brian Pears, head equity trader at Victory Capital Management in Cleveland. "If, on the whole, earnings can go up, then we might be able to overcome oil and inflation and all the other things."

A report on consumer confidence from the University of Michigan gave investors little comfort. The preliminary April gauge of consumer sentiment fell more than expected in March - the fourth consecutive monthly drop - according to people with access to the monthly survey.

Analysts blamed higher gasoline prices for the decline in consumer confidence.

A fall in consumer sentiment does not necessarily translate into a slowdown in consumer spending, but the pattern indicates that consumers, who account for the bulk of economic growth, have grown more cautious, economists said.

IBM shares tumble

Stocks were also weighed down by an 8.3 percent drop in the shares of International Business Machines Corp., a component of the Dow. IBM's shares tumbled $6.94 to $76.60 yesterday, making it the biggest loser on the Dow.

The decline was a reaction to IBM's release of disappointing first-quarter financial results after the close of financial markets Thursday. The technology company, which missed Wall Street's forecasts by 6 cents a share, said an inability to close deals before the end of the quarter and higher pension costs held down its earnings. It also hinted at a major restructuring this year.

One of the few bright spots in yesterday's trading was Genentech Inc., a biotechnology company that reported promising test results for its Avastin drug, which is used in combination with chemotherpathy to treat breast cancer. Genentech's shares soared more than 18 percent on the New York Stock Exchange.

The Los Angeles Times is a Tribune Publishing newspaper. The Associated Press contributed to this article.

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