Stocks Hit by Flight to Safety
NEW YORK (
) -- Stocks tumbled more than 1% Tuesday, and the
Dow
notched a triple-digit loss, as a plunge in July existing-home sales rekindled double-dip recession fears and spurred a flight to safe havens like bonds and gold.
Prices on the benchmark 10-year U.S. Treasury jumped, lowering the yield to 2.497% as investors sold off riskier assets. Gold for December delivery closed $4.90 higher at $1,233.40 an ounce at the Comex division of the New York Mercantile Exchange. Oil prices fell below $72 a barrel.
The Dow Jones Industrial Average lost 134 points, or 1.3%, to close at 10,040. The
S&P 500
shed 15 points, or 1.5%, to finish at 1052, and the
Nasdaq
dropped by 36 points, or 1.7%, to 2124.
"We bounced off of the lows after the Dow fell to 10,000, so basically, we did find some support at the lower end of the trading range here, but markets are very concerned about the direction of the economy," said Peter Cardillo, chief market economist at Avalon Partners. "The home-sales plunge spooked the market that the economy might be headed for a double-dip recession even though we had
Chicago Federal Reserve Bank President Charles Evans say today that he doesn't think a double-dip is likely. But he did acknowledge that weakness has increased."
Evans discussed the possibility of a double-dip recession in response to a question following his speech before the Indianapolis Neighborhood Housing Partnership this morning, according to
Reuters
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"There's been a general decline in commodity prices, although gold rebounded and is even up for the day. The dollar was higher but is weaker now. Basically, what we're seeing is more and more risk aversion in the market," Cardillo said.
Overseas on Tuesday, Hong Kong's Hang Seng fell 1.1%, and Japan's Nikkei dropped 1.3%. The FTSE in London lost 1.5%, and the DAX in Frankfurt shed 1.3%.
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The Economy
Existing-home sales plunged 27.2% in July to 3.83 million units, according to the National Association of Realtors. July's level was much weaker than the 4.75 million units that economists had been expecting, according to Briefing.com. June's level was also downwardly revised to 5.26 million units from 5.37 million units as previously reported.
"Consumers rationally jumped into the market before the deadline for the home buyer tax credit expired," said Lawrence Yun, chief economist of the National Association of Realtors, in a statement. "Since May, after the deadline, contract signings have been notably lower and a pause period for home sales is likely to last through September."
Manufacturing activity in the Richmond, Va., region continued to strengthen in August but at a weaker pace than in July, according to the Richmond Fed index, which came in at 11 in August, down from July's reading of 16.
Late in the day, the American Petroleum Institute said crude inventories dropped by 1.85 million barrels for the week ended Aug. 20, according to
Bloomberg.
Analysts polled by Platts were projecting a 1.1 million-barrel increase in oil supplies. The government's Energy Information Administration is scheduled to report its own inventory assessment on Wednesday at 10:30 a.m. EDT.
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Company News
Boeing
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,
Alcoa
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and
Caterpillar
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led the decliners on the
Dow Jones Industrial Average
, while
AT&T
,
Kraft Foods
(KFT)
and
Wal-Mart
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were among a handful of blue chips to finish in positive territory.
Speculation regarding other possible bidders for
Potash
(POT)
continued to swirl after the fertilizer company formally rejected
BHP Billiton's
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hostile takeover bid. According to a
Wall Street Journal
report, a consortium led by Chinese private-equity fund Hopu Investment Management is considering making an offer. Potash shares lost 0.8%, at $149 in Tuesday's session.
Shares of
Campbell Soup
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added a penny at $36.91 as investors continued to anticipate a $2.3 billion bid for the biscuit business of U.K.-based
United Biscuits
, following a recent London press report.
Stem-cell stocks were struggling after a federal judge said Monday that government-funded stem-cell studies violated a law prohibiting the use of taxpayer money for research involving destroyed embryos.
StemCells
(STEM)
stock lost 6.3% to nearly 80 cents, and shares of
Cytori Therapeutics
(CYTX)
, which makes regenerative medicine medical products, dropped 6.1% to $4.46.
Dell
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is reportedly preparing a sweetened offer for data-storage company
3Par
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to compete with
Hewlett-Packard's
$1.6 billion proposal on Monday, according to
Bloomberg
. Dell's stock was down 3% at $11.59, and Hewlett-Packard's stock shed 1.7% to $38.38. Meanwhile, shares of
3Par gained 3.6% to $27.03, putting it well ahead of the current $24-a-share takeover price.
Big Lots
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said second-quarter net earnings rose 37% to $38.9 million, or 48 cents a share, compared with the 47 cents a share that analysts had been expecting. The company also said sales rose 5.1% to $1.14 billion, and it increased year-end profit guidance. The stock lost 2.7% to $30.88.
Shares of
Medtronic
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declined by 10.8% to $31.21 after the medical technology company said first-quarter revenue slipped to $3.77 billion from $3.93 billion a year ago. Adjusted earnings were 80 cents a share. Analysts, according to Briefing.com, had been expecting a profit of 80 cents a share on sales of $3.95 billion.
Barnes & Noble
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reported a wider-than-expected adjusted first-quarter loss of $1.02 a share, possibly opening the door for billionaire Ron Burkle to take three seats on the company's board. Sales increased 21% year-over-year to $1.4 billion but the bookseller said it expects second-quarter same-store sales to fall between 1% and 3%, and lowered its year-end guidance by 25 cents a share, citing significant legal costs. The company now expects a full-year loss of 25 cents to 65 cents a share. The stock lost 2% at $14.70.
Shares of
Burger King
(BKC)
rose 1.6% to $16.89 after the quick-service restaurant reported fourth-quarter earnings of 36 cents a share, which include a negative, currency-related impact of a penny a share. The numbers beat Wall Street's profit target of 34 cents a share, according to Briefing.com. Global same-store sales, however, fell 0.7%, and North American same-store sales fell 1.5%. Fourth-quarter sales also slipped, by 1%, to $623 million.
Solar-power products manufacturer
Trina Solar
(TSL)
reported a second-quarter profit of 52 cents a share, which includes a currency-related loss of 37 cents a share. The consensus estimate, which typically excludes non-recurring items, was for earnings of 49 cents a share, according to Briefing.com. Sales more than doubled year over year to $370.8 million. For the second half of the year, the China-based company anticipates higher shipment volume to Europe and expects to increase its percentage of global shipments to the U.S. Shares gained 5.8% at $23.70.
After receiving warnings from the U.S. Food and Drug Administration regarding the marketing of two orthopedic drugs, shares of
Johnson & Johnson
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fell off 1.5% to finish at $58.
The
European Union gave its blessing to
MetLife's
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buyout of
American International Group's
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ALICO subsidiary, in a deal worth $15.5 billion. Shares of MetLife traded 1.8% lower at $36.47, while AIG shed 2.3% at $34.25.
According to a report,
Apple's
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iPhone 4 will go on sale in China beginning in mid-September through
China Unicom
. Apple' stock was off 2.4% at $239.93.
Late Monday,
Borders Group
(BGP)
issued a press release announcing the resignation of Chief Financial Officer Mark Bierley. Glenn Tomaszewski, a vice president, will serve as CFO on an interim basis. On Tuesday, the stock traded 7.6% lower at $1.10.
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Commodities and the Dollar
Crude oil for October delivery lost $1.47 to settle at $71.63 a barrel.
Elsewhere in commodity markets, the December gold contract gained $4.90 to settle at $1233.40 an ounce.
The dollar was trading slightly higher against a basket of currencies, according to the dollar index.
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Treasuries
The U.S. Treasury's $37 billion auction of two-year notes had a bid-to-cover ratio of 3.12 and a high yield of 0.498%.
The two-year note was up 1/32, with a slightly lower yield of 0.475%.
The benchmark 10-year Treasury was up by 29/32, decreasing the yield to 2.497%, and the 30-year bond was up by 2 1/32, diluting the yield to 3.558%.
--Written by Melinda Peer and Sung Moss in New York
.
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Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.
