U.S. stocks fall amid concerns of slowing global growth

8/16/2011

NEW YORK — More evidence of a slowing global economy sent stocks falling Tuesday and threatened to end the market’s three-day rally.

Germany’s economy stalled last quarter and dragged down growth for Europe. In the U.S., reports painteda mixed economic picture: Housing remains weak, but factory output rose last month at its fastest pace since the March earthquake in Japan disrupted global manufacturing.

The Dow Jones industrial average fell more than 120 points in the first half hour of trading before paring most of its losses by noon. Stocks then quickly resumed their decline after the leaders of France and Germany tried to calm worries about Europe’s debt problems by pushing for long-term political solutions instead of immediate financial measures like a single European bond.

The Dow fell 176 points, or 1.5 percent, to 11,307 at 1:06 p.m. The Standard&Poor’s 500 index fell 22 or 1.9 percent, to 1,182. The Nasdaq composite fell 57, or 2.2 percent, to 2,497.

“Investors don’t know which way to go here,” said Paul Brigandi, senior vice president of Direxion Funds, which has $7 billion in assets under management. Stocks look cheaper after the S&P 500’s 10.4 percent drop from July 21 to Monday, but investors are still worried about the global economy and debt problems in both the United States and Europe.

Prices for gold and Treasurys rose as dollars moved into investments considered safer. Oil fell on worries that a weaker economy will mean less demand for energy.

Fitch Ratings also said Tuesday that it will keep its credit rating on the United States at the top grade. Two of the three major credit-rating agencies now have stood by their AAA grade of U.S. debt. Standard&Poor’s downgraded the U.S. on Aug. 5. That sent stocks on a volatile skid last week.

Europe’s economy and debt troubles have been among global investors’ main concerns over the last year and a half. On Tuesday, the European Union reported that economic growth in the 17 countries that use the euro slowed to 0.2 percent between April and June from 0.8 percent in the previous quarter. Germany’s growth fell to 0.1 percent from 1.3 percent.

That will make it even tougher for Spain and other countries to raise revenue. Some European countries have borrowed so much that they may need help repaying debt.

The leaders of France and Germany, the eurozone’s biggest economies, said Tuesday that all countries that use the euro should have mandatory balanced budgets and better coordination of economic policy. They also pledged to harmonize their corporate taxes to show they are “marching in lockstep” to protect the euro.

In the U.S., homebuilders are still stuck in their years-long slump. They broke ground on new homes at an annual rate of 604,000 last month, according to the Commerce Department. That’s down from 613,000 in June. In 2005, before the housing bubble burst, housing starts were typically above 2 million.

Manufacturing may be recovering. Industrial production rose 0.9 percent last month on a pickup at auto factories, utilities and mines. Manufacturing had been one of the strongest industries since the recession ended in 2009, but its growth had been slowing this year.

A separate report showed that prices for imports rose 0.3 percent in July because costs rose for fuel and fertilizers. Prices for U.S. exports fell 0.4 percent, the first drop in a year.

Wal-Mart Stores Inc. rose 3.1 percent after it said net income rose 5.7 percent last quarter from a year ago on strong overseas sales. Earnings growth was stronger than analysts expected, and the world’s largest retailer raised its profit forecast for the year.

Home Depot Inc. rose 4.3 percent after it said second-quarter net income rose 14 percent and raised its profit forecast.

Investors have largely ignored the strong earnings reported so far for the second quarter. Companies in the S&P 500 index earned a record amount last quarter on an operating basis, which ignores one-time costs and other special items, according to S&P senior index analyst Howard Silverblatt.

Investors have been overwhelmed by the market’s volatility, said Tim Holland, portfolio manager of the Aston/Tamro Diversified Equity fund. “When you have these big swings, people completely lose focus on companies and their results. They’re paying more attention to the market than the companies that make up the market. The earnings season was good and better than expected.”

Holland said that not only are companies earning more money, they also have healthier balance sheets than they did during the financial crisis of 2008. He has been buying stocks made cheaper by the downturn. “We like to buy the best when they’re depressed,” he said.

Saks Inc. fell 5.4 percent after it said it’s going into the fall season “a bit more cautiously.” Its higher-income customers have been spending more, because they’re more protected from the weak job market than middle-income Americans. But the volatile stock market could hurt wealthy shoppers’ confidence. Saks said its revenue rose 13 percent last quarter from a year ago, and it reported a loss of just $8.4 million versus its loss a year ago of $32.2 million.

Urban Outfitters fell 8.9 percent, the most among stocks in the S&P 500. It said late Monday that its profit fell 21 percent last quarter on higher costs for catalogs and technology.

Energy stocks in the S&P 500 fell 0.7 percent after oil dropped $1.43 per barrel to $86.45.

The yield on the 10-year Treasury note fell to 2.22 percent from 2.31 percent late Monday as investors moved into things considered safer. A bond’s yield falls when its price rises. The 10-year yield fell to a record low of 2.03 percent last week.

Gold rose $28 per ounce to $1,786. Last week, it rose above $1,800 for the first time.

Stocks have been particularly volatile since last week, after S&P chopped the U.S. from its top AAA credit rating to AA+ on Aug. 5. The Dow rose or fell by 400 points in the first four days of last week, the first time that has happened.

The Dow rallied 213 points on Monday after a series of acquisitions, highlighted by Google’s $12.5 billion purchase of Motorola Mobility. It marked the Dow’s first three-day gain since July 1. Its rise of 763 points over the three days was the Dow’s biggest since November 2008, during the depths of the financial crisis.