Stocks Lose Ground After Bhutto Death
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NEW YORK (AP) — Wall Street skidded Thursday after the assassination of Pakistani opposition leader Benazir Bhutto and after the Commerce Department's durable goods orders exacerbated concerns about the economy. The major indexes at times lost more than 1 percent and the Dow Jones industrial average fell more than 140 points.
Bhutto's assassination raised the possibility of increasing political unrest abroad, always an unsettling prospect for investors who have already been contending with domestic economic concerns for months. Oil prices rose following the news, and that unwelcome inflationary trend only added to Wall Street's uneasiness.
Meanwhile, the government said orders for durable goods — big-ticket items from commercial jetliners to home appliances — rose by just 0.1 percent last month. Economists had been looking for a rise of 2.2 percent. Still, November saw the first rise in durable goods orders in the last four months.
The Labor Department said the number of workers seeking unemployment benefits showed a surprise increase last week. Applications filed for unemployment insurance rose by a seasonally adjusted 1,000 to 349,000. Economists had expecting the figure would fall to around 340,000 for last week.
In a bright spot, the Conference Board said its Consumer Confidence Index advanced to 88.6 in December from a revised 87.8 in November. It was the first increase since July and Wall Street had expected a slight drop.
Investors track the employment and consumer confidence figures because consumer spending represents about two-thirds of economic activity in the U.S.
"The data came in a bit softer than people were anticipating and then you throw in the situation in Pakistan and that's led people to rush back into Treasurys," said Tom Higgins, chief economist at Payden & Rygel Investment Management in Los Angeles.
Thursday's drop was perhaps exaggerated by the fact that many traders were on vacation, making volume light and price swings more severe. Still, given the political uncertainty overseas, many investors were likely selling because they were uneasy about holding long positions going into a holiday weekend.
In midafternoon trading, the Dow fell 142.17, or 1.05 percent, to 13,409.52.
Broader stock indicators also fell. The Standard & Poor's 500 index declined 14.09, or 0.94 percent, to 1,483.57, and Nasdaq composite index fell 26.23, or 0.96 percent, to 2,698.18.
Bond prices rose sharply as investors worried about political instability sought the safety of U.S.-backed investments. The yield on the 10-year Treasury note, which moves opposite its price, fell to 4.20 percent from 4.29 percent late Wednesday. The dollar was mixed against other major currencies, while gold prices rose.
Light, sweet crude rose 68 cents to $96.65 per barrel on the New York Mercantile Exchange and investors again eyed the $100 mark as they had in November. Oil saw its peak of $99.29 on Nov. 21.
Oil also pushed higher after the Energy Department said in a weekly report that oil inventories fell by 3.3 million barrels last week, more than double the 1.3 million barrel decline analysts surveyed by Dow Jones Newswires had expected.
Stocks managed to advance in the previous four sessions, posting a modest increase Wednesday as investors tried to reconcile their expectations with somewhat disappointing results from retailers.
But Thursday's decline after several sessions of gains reflected investors unease over the health of the consumer the prospects for the economy in 2008.
"What happens with the U.S. consumer really determines whether we avoid a recession or whether we actually have one," said Higgins. He expects the economic growth will become sluggish but that the U.S. will skirt a recession.
Higgins also cautioned against reading too much into the moves of year-end sessions like that seen Thursday where volumes are light.
Leo Kamp, chief economist at financial services group TIAA-CREF, said the tallies of recent weekly unemployment figures are likely unsettling for many investors.
"There is a lot of news in those numbers. They have been trending up which suggests that the labor market and the economy will be slow for a while," Kamp said.
He noted that weakness in labor and a resulting pullback among consumers could then trigger a slowdown for demand among a range of businesses, even those that don't directly cater to consumers.
Beyond the consumer, the financial sector commanded some of the attention of those who waded into the markets Thursday. Goldman Sachs predicted that the flood of writedowns at banks tied to soured mortgages will continue.
Goldman said Citigroup Inc. may be forced to write off 70 percent more than the $8 billion to $11 billion Citi forecast in early November. Citi could also cut its dividend by 40 percent and may need to raise $5 billion to $10 billion more cash, Goldman estimates.
Citi, one of the 30 stocks that makes up the Dow Jones industrials, fell 84 cents, or 2.7 percent, to $29.61.
Meanwhile, Goldman also raised concerns about Merrill Lynch & Co., which fell $1.28, or 2.4 percent, to $53.27 and JPMorgan Chase & Co. declined 82 cents to $44.12.
In other corporate news, Sallie Mae fell $1.37, or 6.2 percent, to $20.76 after saying it would sell $2.5 billion in stock and use a bulk of the proceeds to settle contracts requiring the company to buy back stock at prices above current levels. Shares of the student lender, officially known as SLM Corp., fell sharply last week amid concerns about the company's plans following a the collapse of a $25 billion buyout deal.
Declining issues outnumbered advancers by more than 2 to 1 on the New York Stock Exchange, where volume came to a light 607.5 million shares.
The Russell 2000 index of smaller companies fell 12.94, or 1.62 percent, to 784.09.
Overseas, Japan's Nikkei stock average fell 0.57 percent. Britain's FTSE 100 rose 0.29 percent, Germany's DAX index gained 0.45 percent, and France's CAC-40 added 0.24 percent.
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