Investor worries keep Dow tumbling
Debt deal can’t allay all fears Jobs report considered key
The stock market plummeted again yesterday on growing worries about the ailing US economy, despite the fact that President Obama signed legislation to raise the debt ceiling and avert a potentially disastrous default on the country’s debt.
The Dow Jones industrial average dropped nearly 266 points, or more than 2 percent, yesterday, the eighth straight day the stock market has slumped and marking the longest losing streak since the financial crisis in October 2008. Overall, the Dow has dropped 6.7 percent in the past eight days and is at its lowest point since March 18, though it still remains up slightly for the year.
Analysts said the market has been beaten down by a wave of bad economic news in the past week, in addition to anxiety about a potential default. The Commerce Department said yesterday that consumer spending dropped 0.2 percent in June, the first decline in nearly two years. And that followed a weak manufacturing report on Monday and a dour study on Friday that showed the economy has been growing even more slowly than previously thought.
In addition, some investors are now beginning to fret that the debt ceiling deal could actually further weaken the economy by cutting government spending before the economy has fully recovered from the recession. As part of the deal, Congress and the White House agreed to cut spending by more than $2 trillion over the next decade.
“The austerity measures are necessary to improve our long-term fiscal health, but in the near term these measures will act as a headwind against growth,’’ said Paul R. Touchstone, senior investment strategist for Stone & Youngberg LLC, a financial services firm in San Francisco. Touchstone said he was previously optimistic that the economy would improve in the second half of the year but plans to revisit that prediction in light of the latest numbers.
The S&P 500 and Nasdaq indexes fell by even wider margins yesterday. The Nasdaq 500 slipped 2.75 percent, while the S&P dropped 2.56 percent.
And the stock market could be shaken again in coming days if new jobs data come in weaker than expected. The Department of Labor is slated to issue its monthly unemployment report Friday, while ADP, a major payroll company, unveils its own estimates for private sector job growth today. Economists expect the government to report that the country created 85,000 new jobs in July, according to a Reuters poll.
“Jobs will certainly drive the tone of the market for the remainder of the week and will probably overshadow any strong earnings for corporations,’’ Touchstone said.
Gale L. Smith, an investment adviser in Beverly, said she thinks the market has been driven down in part because people were pocketing some of their profits after the market soared earlier in this year.
Smith said she doubts the market would fall much more since the debt deal erased a major threat hanging over the market.
In fact, she believes the market will rally in early September as companies report strong earnings and because there has been such a steep sell-off in recent days.
“There’s a lot of relief that the Aug. 2 deadline has been removed,’’ said Smith, president of Gale L. Smith & Co., a portfolio management firm.
Todd Wallack can be reached at firstname.lastname@example.org.