Wall Street tumbled today after weekly unemployment claims jumped to a six-year high and Wal-Mart and other retailers reported disappointing...
NEW YORK — Wall Street tumbled today after weekly unemployment claims jumped to a six-year high and Wal-Mart and other retailers reported disappointing sales, touching off renewed fears that a pullback in consumer spending will damage the economy.
The Dow Jones industrials fell 224.64, or 1.9 percent, to 11,431.43. The pullback comes after a two-day rally in the Dow of more than 370 points.
Microsoft, one of the 30 Dow stocks, added 37 cents to $27.39 a share. Boeing, also a Dow stock, fell 71 cents to $64.69.
Broader indicators also slid. The Standard & Poor’s 500 index fell 23.12, or 1.8 percent, to 1,266.07, and the Nasdaq composite index fell 22.64, or 1 percent, to 2,355.73.
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The Labor Department said the number of newly laid off people seeking jobless benefits increased by a seasonally adjusted 7,000 to 455,000 last week, the highest level since late March 2002. Wall Street had expected new claims to drop to around 430,000.
Wal-Mart, the world’s largest retailer, said same-store sales, or stores open at least one year, rose 3 percent in July as consumers began using up their government stimulus checks. Analysts who follow the important measure of a retailer’s health had expected a 3.4 percent rise, on average.
Financial stocks also lost ground after insurer American International Group reported that it lost more than $5 billion in the second quarter. The stock was by far the steepest decliner among the 30 that make up the Dow industrials.
Meanwhile, the announcement by the credit-ratings agency Moody’s Investors Service that it placed the long-term ratings of credit card lender American Express on review for possible downgrade added to investors’ jitters.
Bill Stone, chief investment strategist for PNC Wealth Management, said the stream of economic news has been somewhat negative lately, often short-circuiting the market’s attempts to build on rallies. Today’s reports on employment and financials only added to investors list of worries, he said.
“The concerns about a weakening economy always run to worries about the financials and then you add some negative news to them on their own and you’ve got what we’ve got today,” he said.
Oil prices that fell sharply earlier in the week rebounded today, likely adding to Wall Street’s downbeat mood. Light, sweet crude rose $1.44 to settle at $120.02 on the New York Mercantile Exchange.
The employment data today indicated that the labor market continues to weaken. The number of people continuing to collect unemployment benefits rose for the week ending July 26 to the highest level since early December 2003. In recent weeks, General Motors, Weyerhaeuser and Starbucks. have all announced job cuts, sending more people to the unemployment lines.
Stocks briefly came off their lows after the National Association of Realtors said its seasonally adjusted index of pending sales for existing homes rose 5.3 percent to 89 from a downwardly revised figure of 84.5 for May. Despite the June increase, the index sits 12 percent below year-ago levels. Economists surveyed by Thomson/IFR had predicted the index would fall to 84.3.
Jerry Webman, chief economist at Oppenheimer Funds, said a swift pullback in stocks after the day’s economic readings illustrates the fragility of investor sentiment. He said the market’s volatility reflects an undercurrent of uncertainty and efforts by some traders to capitalize on shifts in the mood.
“We react very strongly to bits of news,” he said. “The whipsaw danger is pretty high here.”
In corporate news, American International Group fell $5.25, or 18 percent, to $23.84 after the world’s largest insurer reported its loss and said weakness in the credit markets has erased several billions of dollars in value from its credit default swaps portfolio and other investments.
American Express fell $1.31, or 3.5 percent, to $36.68 after the Moody’s announcement.
Citigroup fell $1.18, or 6 percent, to $18.52 after federal and state regulators announced settlements today in which the company will repurchase more than $7 billion in auction-rate securities and pay $100 million in fines. The company neither acknowledged nor denied wrongdoing under the settlements. New York Attorney General Andrew Cuomo had threatened to charge Citigroup with fraudulent sales of auction-rate securities and with the destruction of key documents.
The latest worries about financials offered an unwelcome reminder of the trouble companies are having with bad debt on their balance sheets. Tightness in the credit markets makes it hard for companies to unload and even value mortgages and other paper. And the reports of rising unemployment today only added to fears that defaults on mortgages and other borrowings aren’t likely to end soon as consumers continue to struggle.