Stocks fall as investors ask: Will stimulus work?
NEW YORK (AP) – The stock market's concerns about the economy aren't letting up, even after Congress reached a deal on a $789 billion economic stimulus plan. (For information regarding broadband and the stimulus package, click here).
With Wall Street skeptical about how effective the stimulus will really be, a surprise jump in January retail sales and better-than-expected results from Coca-Cola Co. could not keep the stock market from trading lower Thursday. The Dow Jones industrial average fell more than 100 points, trading near its lowest levels since last November.
"The stimulus bill looks like a little bit of a wet blanket," said Randy Frederick, director of trading and derivatives at Charles Schwab. "There is some concern that maybe this thing won't work as well as expected."
President Barack Obama says the plan will save or create more than 3.5 million jobs. But investors have been burned before: last year's stimulus refund to taxpayers and a $700 billion financial bailout have not been able to reverse the economy's slide.
Some market participants are worried the current stimulus plan has fallen victim to politics. Those who wanted small, targeted stimuli are calling the package too large, and those who preferred a bigger stimulus of nearly $1 trillion say the current package could be too weak.
"Nobody's completely happy with compromise," said Citigroup economist Steven Wieting. He said the stimulus should help the weak parts of the economy, and that the Treasury Department's plan for banks' "toxic assets" should provide some stability to the credit markets, but that the unemployment rate will still likely rise to 9 percent – and perhaps higher.
This week has been a disappointing one for the stock market, which rallied last week ahead of anticipated announcements about the stimulus and the financial bailout plan. That rally was erased Tuesday after Treasury Secretary Timothy Geithner said the government will boost lending, determine which banks should get extra funding, and remove toxic assets from banks' books – but provided few details about how the plans would work.
In early afternoon trading Thursday, the Dow Jones industrial average dropped 133.25, or 1.68 percent, to 7,806.28, after a moderate advance on Wednesday.
The biggest gainer in the Dow was Coca-Cola, which posted an 18 percent drop in fourth-quarter earnings but topped Wall Street's forecast in terms of adjusted earnings. The soft drink maker also said its case volume grew. Coca-Cola shares rose $2.47, or 6 percent, to $43.74.
Broader stock indicators were also lower. The Standard & Poor's 500 index fell 12.52, or 1.50 percent, to 821.22, and the Nasdaq composite index fell 7.63, or 0.50 percent, to 1,522.87.
The Russell 2000 index of smaller companies fell 3.65, or 0.81 percent, to 444.30.
Declining issues outnumbered advancers by about 3 to 1 on the New York Stock Exchange, where volume came to 646.3 million shares.
Government bond prices were mixed. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 2.80 percent from 2.76 percent late Wednesday. The yield on the three-month T-bill rose to 0.30 percent from 0.29 percent.
The dollar was higher against other major currencies, while gold prices rose.
Light, sweet crude fell 79 cents to $35.15 a barrel on the New York Mercantile Exchange.
Economic data was mixed Thursday.
The Commerce Department said Thursday that retail sales jumped 1 percent in January, the biggest increase in 14 months, after a 2.7 percent drop in December. Economists polled by Thomson Reuters had predicted that sales fell 0.8 percent last month.
The department also said, however, that businesses cut inventories 1.3 percent in December, the biggest reduction in seven years. The 1.3 percent drop in December was far steeper drop than the 0.9 percent decline analysts had expected; cuts in inventories show that businesses see weak demand from customers.
Meanwhile, the Labor Department said first-time claims for unemployment benefits dropped to a seasonally adjusted 623,000, from an upwardly revised figure of 631,000 the previous week. The total came in above the 610,000 claims analysts had been expecting.
And the number of people still continuing to seek unemployment benefits rose to 4.81 million from 4.78 million, the highest since records began in 1967. Economists expected 4.8 million.
Overseas, Japan's Nikkei stock average fell 3.03 percent. In afternoon trading, Britain's FTSE 100 fell 0.76 percent, Germany's DAX index fell 2.70 percent and France's CAC-40 fell 2.09 percent.