Wall Street sank Thursday, after weak readings on economic growth and the job market touched off renewed concerns about the financial health of businesses and consumers. The Dow Jones industrial average fell more than 200 points.
The Commerce Department’s report that gross domestic product grew at a 1.9 percent pace in the second quarter disappointed investors. Economists polled by Thomson Financial/IFR had expected growth of 2.4 percent in the broad measure of the economy’s health.
Investors were also concerned about Labor Department data saying that the number of people seeking jobless benefits jumped to the highest level in five years. Economists warned the weekly figures can be volatile, however, and some dismissed them as an aberration.
A $4.5 billion cash offer from Bristol-Myers Squibb Co. for its cancer drug partner ImClone Systems Inc. kept the Nasdaq composite index from falling as sharply as other indexes. In other positive news, oil prices declined, and an index of Midwestern business activity indicated growth.
But Wall Street could not shake off its worries about the economy — particularly after sobering remarks from Former Federal Reserve Chairman Alan Greenspan on CNBC late in the afternoon. Greenspan said he would be more surprised if the United States did not enter recession than if it did.
The comments came after Treasury Secretary Henry Paulson said in a speech in Washington that the economy will continue to grow at a moderate pace for the rest of the year, and the government’s $168 billion stimulus package had helped grease the economy’s wheels.
But Larry Smith, chief investment officer at Third Wave Global Investors in Greenwich, Conn., said tightness in credit markets and high oil prices continue to weigh on the economy and the stimulus package won’t deliver a permanent fix.
“Tax rebates have been a very effective way of propping up the economy in the second quarter, and less so in the third quarter,” Smith said. “To fix the economic growth problems, you have to restore liquidity to the system.”
The Dow Jones industrial average fell 205.67, or 1.78 percent, to 11,378.02, continuing its string of erratic, triple-digit daily swings.
Broader stock indicators also declined. The Standard & Poor’s 500 index fell 16.88, or 1.31 percent, to 1,267.38, while the Nasdaq fell 4.17, or 0.18 percent, to 2,325.55.
During the month of July, the Dow inched up 0.25 percent, the S&P fell 0.99 percent, and the Nasdaq rose 1.42 percent. It was certainly a better showing than in June, during which the Dow dropped 10.19 percent, the S&P fell 8.60 percent, and the Nasdaq lost 9.10 percent.
Bond prices jumped following the economic readings. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.95 percent from 4.05 percent late Wednesday. The dollar was mixed against other major currencies, while gold prices rose.
Light, sweet crude fell $2.69 to settle at $124.08 a barrel on the New York Mercantile Exchange after rising more than $4.50 on Wednesday. Oil has fallen more than $20 since hitting a high above $147 on July 11, raising hopes that inflation pressures could ease.
Thursday’s stock market pullback follows bets investors made this week that the beaten-down financial sector would rebound and that the Labor Department’s employment report on Friday would show a less gloomy jobs market.
But other stock rallies have fizzled in recent weeks. Investors have remained concerned about the housing and credit markets, the health of financial companies and the effect of high commodities prices.
The latest GDP reading, which reflected consumers cashing tax rebate checks, still shows the economy grew at a faster pace than the weak 0.9 percent seen in the first quarter. But revised numbers also revealed for the first time that the economy shrank in the fourth quarter last year.
The mixed economic figures are making it hard for investors to have much conviction, observers say.
“I think in the short run, it’s going to be a tug-of-war between the optimists and the pessimists,” said Jack Caffrey, equities strategist at JPMorgan Private Bank. “I think both sides are going to be able to find enough information to support their case.”
At some point one side will give in, he said.
“The challenge is, you can’t identify what the catalyst is that will change psychology.”
Investors sifted through a flurry of quarterly profit reports for clues about the economy.
Exxon Mobil Corp. reported second-quarter earnings of $11.68 billion, the largest quarterly profit ever by a U.S. corporation. But the per-share earnings fell well short of Wall Street’s forecast, which assumed that record crude prices would push earnings even higher. The stock fell $3.95, or 4.7 percent, to $80.43 and weighed on the Dow industrials.
The Walt Disney Co. fell $1.32, or 4.2 percent, to $30.35 after the company reported a slowdown in the U.S. advertising market in the current quarter and weak box office results in the period that ended in June.
Motorola Inc. jumped 96 cents, or 12.5 percent, to $8.64 after posting a surprise profit for its second quarter. The company said it shipped more cell phones than in the first quarter.
Eastman Kodak Co. reported a second-quarter profit but the results missed Wall Street’s forecast. The stock declined $1.13, or 7.2 percent, to $14.64.
In other news, Wall Street applauded Bristol-Myers’ offer $60 per share for ImClone, a 30 percent premium to ImClone’s closing price of $46.44 Wednesday. Bristol-Myers, which already owns about 17 percent of ImClone, is a U.S. partner for the colon and head and neck cancer drug Erbitux. ImClone surged $17.49, or 37.7 percent, to $63.93. Bristol-Myers slipped 39 cents to $21.12.
Declining issues outpaced advancers by about 3 to 2 on the New York Stock Exchange. Consolidated volume came to 5.16 billion shares, up from 5.06 billion shares.
The Russell 2000 index of smaller companies fell 4.34, or 0.60 percent, to 714.52.
Overseas, Japan’s Nikkei stock average closed up 0.07 percent. Britain’s FTSE 100 fell 0.16 percent, Germany’s DAX index rose 0.30 percent, and France’s CAC-40 fell 0.19 percent.