Stocks continue slide as investors remain uncertain about strength of economy

By Stephen Bernard, AP
Friday, August 20, 2010

Stocks slide as investors continue sell-off

NEW YORK — Stocks fell moderately Friday as investors sold heavily for the second straight day over worries about the pace of the recovery.

Investors are finding little reason to buy. There are no reports due out that could offset Thursday’s disappointing news that growth in the domestic economy continues to slow. The Dow Jones industrial average fell about 90 points in afternoon trading, a day after falling 144. Broader indexes also fell moderately Friday and are on pace for a losing week.

“We’re not seeing any significant growth prospects,” said Peter Costa, president of Empire Executions. “Why be in the market if there’s no (near-term) prospects for growth?”

Oil prices fell again on worries that future demand will wane if economic growth remains tepid. Energy stocks were among the worst performers on the day, including oil companies Chevron Corp. and ConocoPhillips.

Overseas markets also fell, reacting to reports Thursday that initial claims for unemployment benefits in the U.S. rose last week and manufacturing in the Mid-Atlantic region shrank.

“We’re probably on a continuation from yesterday’s disturbing claims number,” said Paul Zemsky, head of asset allocation at ING Investment Management. “There’s really nothing to hang your hat on.”

Earlier this year, traders were worried Europe’s economy would slow down so much that it would put a drag on a global recovery. Now, economic reports are making investors worry that the U.S. economy will slow worldwide growth.

In afternoon trading, the Dow fell 91.23, or 0.9 percent, to 10,179.90. The Standard & Poor’s 500 index fell 7.79, or 0.7 percent, to 1,067.84, while the Nasdaq composite index fell 8.65, or 0.4 percent, to 2,170.30.

About three stocks fell for every one that rose on the New York Stock Exchange, where volume came to 693.3 million shares.

Volume has been exceptionally low in recent weeks, which has added volatility to the market. But many stock options are expiring Friday, which could be providing a lift to volume.

Data has shown in recent months that private employers are largely skittish about hiring new workers because they are unsure how strong business will be in the coming quarters. That, in turn, has people worried about their jobs and spending less. But until spending picks up, unemployment could remain high.

Mark Luschini, chief market strategist at Janney Montgomery Scott, said companies are also reluctant to hire because of worries about taxes and government programs like the health care reform passed earlier this year.

“The uncertainty that exists on regulatory and income taxes has (employers) in stall mode,” Luschini said. Companies are worried about whether higher taxes and costs associated to regulation reform will impact profit margins and cause shoppers to reduce spending if they are paying more taxes, Luschini said.

The unemployment rate remains at 9.5 percent and analysts widely agree it needs to fall to lead to a stronger rebound.

In corporate news, Dell Inc. reported a better-than-expected profit Thursday, due largely to increased technology spending by businesses. However, sales in its consumer personal computer division were flat compared with the same quarter last year — further evidence that shoppers are hesitant to buy new goods.

Hewlett-Packard Co. reported quarterly results that were in line with preliminary results it released earlier in the month. Its profit rose 6 percent. Unlike Dell, it had growth in its personal computer sales.

HP fell $1.06, or 2.6 percent, to $39.70. Dell shares fell 7 cents to $11.97.

Corporate mergers and acquisitions activity gave stocks a boost early this week, but has been since overshadowed by weak economic reports. Mergers and acquisitions activity is usually seen as a hopeful sign for the economy because it means companies are willing to spend money, betting that their businesses and the economy will grow in the coming quarters.

Benchmark crude for October delivery fell $1.13 to $73.64 a barrel on the New York Mercantile Exchange. Oil prices have steadily dropped throughout August because of concerns that demand will drop if the global economic recovery slows.

Chevron fell 98 cents to $74.86. ConocoPhillips dropped $1.26, or 2.3 percent, to $53.45.

Bond prices traded in a tight range. The yield on the 10-year Treasury note, which moves opposite its price, was unchanged at 2.58 percent compared with late Thursday. Its yield is often used to help set interest rates on mortgages and other consumer loans.

Overseas, Britain’s FTSE 100 fell 0.3 percent, Germany’s DAX index dropped 1.2 percent, and France’s CAC-40 fell 1.3 percent. Japan’s Nikkei stock average fell 2 percent.

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