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Stocks slide despite GDP growth

Stocks tumbled in a late afternoon sell-off Thursday after a lower-than-expected gross domestic product figure failed to ease investor fears about interest rates.
/ Source: The Associated Press

Stocks tumbled in a late afternoon sell-off Thursday after a lower-than-expected gross domestic product figure failed to ease investor fears about interest rates.

The Dow Jones industrial average fell 70 points, giving it a two-day drop of more than 200 points, and all three major indices fell to their lowest levels in more than a month.

While GDP growth was slower than Wall Street estimates, analysts said it would likely bring only a temporary reprieve from an anticipated Federal Reserve decision to raise rates. Stocks have fallen for more than two weeks on rate concerns, and the prospect of higher rates also squelched a rally that began early in Thursday’s session.

“I think this will allay some fears, but it might only put off a rate hike for a month or so,” said Todd Leone, managing director of equity trading at SG Cowen Securities. “It’s just a matter of time before the Fed raises rates. It’s merely a question of how much and when.”

The Dow ended the day down 70.33 points, or 0.7 percent, at 10,272.27 Thursday after falling 135.56 points on Wednesday. It was at its lowest point since March 26.

Broader stock indices also fell sharply.

The Standard & Poor’s 500-stock index was down 8.53 points, or 0.8 percent, at 1,113.88, also the lowest level since March 26, while the Nasdaq composite index dropped 30.76 points, or 1.6 percent, to 1,958.78, sinking to its lowest level since March 24.

While the market’s case of interest rate nerves started the selling, the downward momentum was what took prices even lower, analysts said.

“There was no real news here, and volume really didn’t pick up,” said Bill Groenveld, head trader for vFinance Investments. “I think this was purely a technical move that sent everything lower. There’s a definite downtrend here, but there’s nothing solid behind it.”

That downward trend and increased volatility may remain until the Fed to discuss rates on Tuesday. Fed Chairman Alan Greenspan has already hinted that higher rates will be needed to keep the economy from growing too fast.

“We’ve changed paradigms. It’s a shift from worrying about a slow economy. Now we get good economic data and we’re cringing over the interest rates,” Groenveld said. “We get good earnings, good economic data, but is it too good? Not good enough? We’re right in the middle of a very news-driven market, and we’re going to be in for some volatile sessions.”

The GDP rose 4.2 percent for the first three months of the year, according to the Commerce Department, up slightly from the 4.1 percent gain in the final quarter of 2003. This was lower than the 5 percent rise expected by economists, however.

In another sign of economic growth, the Labor Department reported that new filings for jobless benefits fell last week by 18,000 to 338,000. Analysts said the figures show that layoffs at companies are beginning to drop off somewhat.

However, hiring back employees could be a no-win situation. Unchecked inflation would mean higher hiring costs. The Fed could alleviate that with a rate hike, but that would mean higher borrowing costs for companies seeking capital to expand.

Thursday’s earnings reports had little effect on the market. Exxon Mobil Corp. fell 58 cents to $42.54 after reporting a 23 percent drop in profits from a year ago. The world’s largest publicly traded oil company nonetheless beat analysts’ expectations by 8 cents per share.

Media giant Time Warner Inc., having sidelined its America Online operations into a subsidiary, saw its income double for the first quarter due to strong film and TV results. Time Warner, which surpassed Wall Street estimates by 6 cents per share, gained 46 cents to $16.97.

Consumer products maker Gillette Co. was up $2.50 at $41.28 after the company reported a 43 percent increase in first quarter profits due to strong sales of its shaving, oral care and battery products.

Dow Chemical Co. saw a six-fold rise in its profits from a year ago, beating Wall Street estimates by 7 cents. The company also plans to cut 3,000 jobs this year. Dow Chemical skidded $1.37 to $39.55.

Declining issues outnumbered advancers by more than 3 to 1 on the New York Stock Exchange, where volume was moderate. The Russell 2000 index of smaller companies fell 9.81 points, or 1.7 percent, to 567.25.

Overseas, Britain’s FTSE 100 closed down 0.1 percent, Germany’s DAX index tumbled 1.4 percent, and France’s CAC-40 closed down 0.9 percent. Markets in Japan were closed for a holiday.