The Wall Street Journal-20080116-A Risk Protest- 277-04 Points
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A Risk Protest: 277.04 Points
When it's bad, it's very bad.
The Dow Jones Industrial Average has now dropped five times during the first 10 trading days of the year, and each drop has been by more than 200 points. It's a sign of the skittishness that pervades the market.
Yesterday, the Dow fell another 277.04 points, or 2.2%, to 12501.11. It's down 12% from its record close of 14164.53 in October.
Other stock indexes are also reeling. The S&P 500, down 35.30 points yesterday, or 2.5%, to 1380.95, has recorded its third-worst start to a new year, after 1978 and 1939. The small-stock Russell 2000 index, down 19% since July 13, is nearing a bear market.
Treasury prices rallied, pushing down yields, as investors turned to safer havens. Gold prices slipped on the day, but held above the once- unthinkable $900 an ounce.
The worry is the economy. Financials took a beating yesterday, but other sectors closely tied to economic growth were among the biggest losers. Traditional industrial companies could see reduced demand for their products -- everything from gasoline to cement -- if the economy falls into recession.
The tech sector, which has already taken a beating, seems poised for more pain after tech bellwether Intel Corp. reported disappointing results after yesterday's close. The chip maker's net income soared 51%, but didn't hit expectations and its shares quickly fell 14% in after-hours trading.
Since hitting a high last July, the PHLX Semiconductor Sector index has fallen roughly 34% and is nearing its lowest levels since September 2004.
Tech is closely tied to growth in the U.S. and abroad, since booming economies in China, India and elsewhere demand computers and other devices to improve their competitive standing in the global marketplace.
"Tech is usually a late-cycle phenomenon," meaning it gets hit just as the economy slows, said Kim Caughey, senior investment analyst at Fort Pitt Capital Group, a Pittsburgh portfolio-management firm.
Among other tech bellwethers yesterday, Google slid 2.5% and Research in Motion was off 5.6%. Apple slid 5.5% despite the introduction of a new laptop computer.
Based on a family of nine exchange-traded funds tracking various industries within the S&P, energy stocks were just as weak as financials, posting a 4.1% loss. The S&P's basic-materials sector was also a big loser, off 2.7%.
"It's just momentum selling," said Todd Leone, head of listed trading at Cowen & Co. "There's nothing positive out there right now. People are afraid another shoe is going to drop."
Even a drop in oil prices, normally a positive, didn't give the stock market a sense of relief, Mr. Leone said. "That came off because people think we're going into a recession."
Valero Energy dropped 8.3%. Conoco Phillips was down 3.3%. And Exxon Mobil, a component of both the Dow and S&P, was off 2%.
Further indications of weakening consumer spending -- a key component of gross domestic product, the U.S. economy's bottom line -- hurt markets.
The Commerce Department released surprisingly weak retail-sales data for December, a key shopping period for many stores. Sales fell 0.4% for the month, worse than the 0.1% dip expected by economists.
Shares of Williams-Sonoma were down 9.9%y after the home-products retailer cut its fiscal fourth-quarter outlook because of weaker than expected holiday same-store sales, saying it doesn't foresee the market bouncing back in the near term.
Among other stocks to watch, State Street's fourth-quarter net income fell 28% as the company built up a legal reserve in an attempt to move past subprime woes at its troubled asset management unit. The banking company also gave a cautious 2008 outlook. State Street's shares fell 5.9%.
In major U.S. market action.
Stocks tumbled; bonds rose. The 10-year note rose 25/32 point, or $7.81 per $1,000 invested, to push down the yield to 3.701%.
The dollar weakened. The dollar was at 106.83 yen from 108.19. the euro was at $1.4828 from $1.4871 Monday.
