US stocks dropped for a second day after a government report showed the economy created fewer jobs than expected and Walt Disney Co said earnings are dropping as theme-park attendance slumps.
A prediction by Goldman, Sachs & Co that the threat of recession will prompt the Federal Reserve to lower interest rates extended indexes' initial declines. Five weeks ago, the firm said growth was strong enough to warrant a rate increase this year.
PHOTO: AP
"The economy is weaker than people thought," said Robert Smith, who manages the US$4 billion T. Rowe Price Growth Stock Fund in Baltimore. The "consumer has started to pull in," as unemployment and a third year of declining stocks hurt Americans' sense of security.
Disney, the second-largest media company, had the biggest loss in the Dow Jones Industrial Average, which fell 193.49, or 2.3 percent, to 8,313.13.
The Standard & Poor's 500 Index fell 20.42, or 2.3 percent, to 864.24, led by General Electric Co, Microsoft Corp and Citigroup Inc. The NASDAQ Composite Index declined 32.08, or 2.5 percent, to 1,247.92.
For the week, the S&P 500 rose 1.3 percent, its second straight weekly advance. The last time the benchmark had consecutive weekly gains was in March. The Dow climbed 0.6 percent and the NASDAQ lost 1.1 percent.
More than two stocks fell for every one that rose on the New York Stock Exchange and the Nasdaq Stock Market. Some 1.54 billion shares traded on the Big Board, the slowest day since July 9.
Goldman became the first Wall Street firm to predict a Fed rate cut this year. Just over a month ago, Goldman forecast a 1/2-point increase in the overnight lending rate. The central bank cut its benchmark rate 4.75 percentage points in 11 reductions last year to 1.75 percent, the lowest in more than four decades.
More cuts "would be perceived as an act of desperation," said Jack Ablin, who oversees US$40 billion as chief investment officer at Harris Trust & Savings Bank in Chicago. "I don't think it would sit well among stock investors."
The S&P 500 Index has lost about 34 percent since the Fed began its current rate-reduction cycle on Jan. 3, 2001.
The US added 6,000 jobs in July, the Labor Department said, leaving the jobless rate at 5.9 percent and suggesting a slow recovery in the labor market. Analysts surveyed by Bloomberg had forecast 60,000 new jobs.
Stocks fell yesterday after the Institute for Supply Management's factory index declined more than expected and a government report showed construction unexpectedly slid in June.
The previous day, indexes rebounded from a drop triggered by the government's estimate the economy grew by 1.1 percent, less than half of the average analysts' forecast, in the three months ended in June.
Disney slid US$1.52 to US$15.31, the lowest close since January 1995. The company said fiscal fourth-quarter profit are likely to decline on lower bookings at Disneyland and Walt Disney World.
Other travel stocks slipped. Mandalay Resort Group dropped US$1.59 to US$26.50, and Hilton Hotels Corp declined US$0.70 to US$11.40. Carnival Corp, the world's biggest cruise ship operator, fell US$1.76 to US$23.94.
"The leisure-travel market is softening," said Jason Ader, travel industry analyst at Bear, Stearns & Co Consumers may slow spending in response to a tight job market or money lost in the stock market, Ader said.
UAL Corp fell US$1.07, or 21 percent, to US$4.15. The airline holding company may file for bankruptcy this year, Business Week reported. UAL spokesman Joe Hopkins declined to comment.
Rival airlines slid with UAL. Northwest Airlines Corp. lost US$0.83 to US$8.19; Delta Air Lines Inc. dropped US$1.65, or 11 percent, to US$13.90, and AMR Corp, parent of American Airlines, fell US$0.87 to US$9.80, its first close below US$10 in more than a decade.
United Technologies Corp, which makes Pratt & Whitney engines, fell US$2.24 to US$65.71.
General Electric declined US$1.90 to US$29.50 and Citigroup slid US$1.42 to US$30.88. Microsoft shed US$1.34 to US$44.41.
Retailers also slumped as investors speculated their sales will slow. Wal-Mart Stores Inc, the biggest discounter, lost US$1.30 to US$46.10; Home Depot Inc, the largest home-improvement retailer, slid US$1.20 to US$28.43.
AOL Time Warner Inc, the biggest media company, fell US$0.71 to US$10.30. The Wall Street Journal said the company's accounting in American Online Inc's purchase of Time Warner Inc inflated earnings, the paper said.
Hanover Compressor Co, an oil-services company faced with a federal accounting probe, fell US$1.21, or 14 percent, to US$7.30. The company ousted Chief Executive Officer Michael J. McGhan and Chief Operating Officer Charles D. Erwin.
"It's back to some of the same negatives we've had," said Rob Cohen, a trader at Credit Suisse First Boston. "Corporate governance remains a concern."
Makers of chips used in communications and networking gear fell after National Semiconductor Corp said sales in the current quarter will be about the same as last quarter. The company had said it expected sales to rise as much as 8 percent.
Maxim Integrated Products Inc lost US$2.55 to US$29.96, Texas Instruments Inc declined US$1.14 to US$19.97 and Xilinx Inc slid US$0.84 to US$17.41. National Semiconductor declined US$0.25 to US$16.88. The Philadelphia Semiconductor Index fell 3.4 percent and has lost about half its value since the middle of March.
The Russell 2000 Index of smaller stocks fell 12.76, or 3.3 percent, to 376.45. The Wilshire 5000 Total Market Index, the broadest measure of US shares, declined 199.63, or 2.4 percent, to 8,186.56.
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