Stocks Retreat As Recovery Remains Sluggish

June 24, 2010 - PRLog -- Stocks fell Thursday following disappointing forecasts from retailers and concern about the government's financial overhaul.

The Dow Jones industrial average fell about 145 points in late afternoon trading after edging higher Wednesday. Broader indexes dropped for a fourth straight day.

Downbeat forecasts from retailers raised concerns that high unemployment and weak consumer spending could stall an economic rebound. Nike Inc. dropped 4 percent after saying higher costs could hurt earnings. Bed Bath & Beyond fell 2.3 percent after the home goods retailer's second-quarter earnings estimate missed expectations.

Meanwhile, financial stocks fell after Congress continued working on a bill to overhaul the regulation of the financial industry. Democratic leaders hoped to complete a merger of House and Senate bills by Thursday evening so that President Barack Obama can have a deal in place by the time he meets with the Group of 20 nations this weekend in Toronto.

Traders were concerned that some provisions would cut into bank profits. Large banks were lobbying to cut a proposal that would make the financial industry cover the costs of dismantling the major mortgage companies Fannie Mae and Freddie Mac. Bank of America Corp. and JPMorgan Chase & Co. each lost 2.5 percent.

Stocks of health care and consumer products companies rose, another sign that investors are anxious and looking for investments considered reliable in a weak economy.

Reports on initial jobless claims and durable goods orders contributed to traders' darker view of the economy. The numbers followed the Federal Reserve's more cautious take on the economic recovery on Wednesday.

The government said initial claims for unemployment benefits fell last week but claims are still above levels that would signal employers are ramping up hiring. A second report indicated that orders for durable goods fell last month for the first time in six months. Orders for big-ticket goods fell 1.1 percent in May. Analysts predicted a 1.3 percent drop.

The latest economic reports showed there are "substantive holes in the economic recovery story," said Tom Samuels, portfolio manager of the Palantir Fund in Houston.

In the final hour of trading, the Dow fell 146.17, or 1.4 percent, to 10,153.86. The Standard & Poor's 500 index fell 18.45, or 1.7 percent, to 1,073.59, while the Nasdaq composite index fell 36.57, 1.6 percent, to 2,217.66.

Interest rates were mixed in the Treasury market. The yield on the benchmark 10-year Treasury note rose to 3.13 percent from 3.12 percent late Wednesday. The yield had fallen to a 13-month low of 3.07 percent.

The recent drop in rates is good news for borrowers. Freddie Mac said Thursday that the cost of a home loan has fallen this week to the lowest level on record. The average rate on a 30-year fixed mortgage dropped to 4.69 percent from 4.75 percent last week.

Crude oil rose 11 cents to $76.46 per barrel on the New York Mercantile Exchange. Gold also climbed.

The market's moves were also being driven by traders preparing for changes Friday to some of the stocks that make up the Russell 2000 index of smaller companies. The Russell 2000 fell 9.50, or 1.5 percent, to 634.75.

The slump in stocks made clear that anxiety is still ruling the market after it appeared to be waning just last week. The Dow and other major stock indexes fell to their 2010 lows early this month, then regained some ground as fears about a debt blowup in Europe began to ease.

Now, the concern is that cracks are appearing in the U.S. recovery. Since last week, several reports on housing and jobs have indicated that the economy's biggest trouble spots aren't getting much better. Even manufacturing, which has been one of the strongest areas of the economy, looked weaker in one report last week. Analysts warn that it's misleading to draw big conclusions from a few reports but investors will want to see some better numbers for stocks to resume their climb.

The unemployment and durable goods orders reports come a day after the Fed said the economy is continuing its recovery, but that risks remain. The government said Wednesday that sales of new homes fell last month to the lowest level on record, by Stephen Bernard and Tim Paradis, AP Business Writers.

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