Published: June 1, 2010
Stocks in the United States ended mostly lower on Monday as concern about the Gulf oil spill weighed on the energy sector.
The market was mixed through most of the session after investors returned from a three-day holiday weekend to new data on the domestic economy and continued focus on the state of the European economy.
At the opening the market was sharply lower, generally picking up where it left off last Friday, when all three indexes ended the month about 8 percent lower compared with April.
But shares fell abruptly near the close after the United States Attorney General, Eric H. Holder Jr., said the government was opening civil and criminal investigations of the Gulf oil leak.
BP, which is trying to bring the leak under control, fell 15 percent in London before American markets were open.
At the close in New York, the Dow Jones industrial average was down 112.61 points, or 1.11 percent, at 10,024.02,;the Standard & Poor’s 500-stock index was down 18.70 points, or 1.72 percent, at 1,070.71; and the Nasdaq was down 34.71 points, or 1.54 percent, at 2,222.33.
New data on factory use and construction spending in the United States was unexpectedly strong. The Institute of Supply Management said its index of national factory activity was 59.7 in May. While the figure slipped from 60.4 in April it was higher than the 59.0 forecast by economists surveyed by Thomson Reuters. A reading above 50 indicates expansion.
The Commerce Department reported that construction spending rose 2.7 percent in April, while analysts had expected the figure to be unchanged.
“The markets are extremely oversold,” said Bruce Bittles, chief investment strategist for Robert W. Baird & Company. “My suspicion is that we may slip into a trading-range environment.”
But Mr. Bittles said that he believed that the fresh economic data had little to do with the market upswing because it was mostly a “coincident” indicator of the economy.
The stock market in the United States has been overshadowed for weeks by the European debt crisis, and that sentiment was evident on Tuesday during its initial lows in trading, following major European indexes that were down about 2 percent. But the dip was temporary.
Mr. Bittles said he believed that the news from abroad was “beginning to get a little stale. A lot of it has been built into prices.”
He said that the oversold market was sufficiently immune to ongoing news from Europe; a slowdown of manufacturing in China and the political ramifications after Israeli commandos boarded and detained aid ships over the weekend.
Despite the new spot of tension between Turkey and Israel, United States investors and traders were just catching up after the Memorial Day weekend.
“I think it is mostly just technical perspective in a highly oversold market,” Frank M. Pavilonis, senior market strategist at Lind-Waldock, said of Tuesday’s early market movements. “You could just catch a nice run on a short covering rally. I just think this is a great opportunity to sell.”
The euro was slightly higher after having fallen earlier to its lowest level in four years; bond prices rose early as investors sought the security of fixed income but pared gains as equities recovered; crude oil rebounded from early losses as fear of a global economic slowdown receded.
Hewlett-Packard said it would lay off 9,000 employees and take $1 billion of charges as it automated commercial data centers. But the company saidit would eventually hire 6,000 workers in other areas. Stock in Hewlett rose 9 cents, to $46.10 a share.
Concern about the European economy was heightened Tuesday by a report that the jobless rate rose to its highest level since 1998 in the 16 nations that share the euro.
The seasonally adjusted unemployment rate rose in April to 10.1 percent from 10 percent in March, Eurostat, the statistical office of the European Union, said in Luxembourg.
For the entire European Union, which counts 27 members, the rate was unchanged at 9.7 percent in April.
Spain led the list, with an unemployment rate of 19.7 percent, up from 19.5 percent in March. Fitch Ratings removed its AAA rating for Spain on Friday, cutting the nation’s grade by one notch amid concerns about its ability to address its debt problems at a time of financial and labor market stress.
The European Union and International Monetary Fund last month announced measures valued at more than $900 billion to help euro-zone governments buy time to restore order to their finances. But some investors harbor doubts about whether highly indebted governments will be able to avoid restructuring their debts.
Global equities have been in a downdraft since mid-April, with the MSCI world index declining by more than 13 percent in the last month and a half.
Market sentiment is “very jittery,” Julian Chillingworth, chief investment officer at Rathbone Unit Trust Management in London, said. “We had a rally last week with little substance to it,” he noted, after which shares continued to fall. “This is more of the same,” he added.
In afternoon trading, the Euro Stoxx 50 index, a barometer of euro zone blue chips, was down 0.14 percent, while the FTSE 100 index in London dropped 0.48 percent. Financial shares led the decline, but by afternoon they were recovering a bit, with Santander, the Spanish bank, dropping 2.6 percent, Unicredit of Italy dropping 6.3 percent, and the London-based Barclays dropping 2.3 percent.
BP, which ended with a loss of 13.8 percent in London, has fallen more than 35 percent since the explosion of the drilling rig on April 20. After six weeks with no success in stopping the oil gushing from its Deepwater Horizon well, BP was beginning a new effort Tuesday to funnel some of the leaking crude to a tanker on the surface.
“What you’re seeing is a markdown by market-makers and some speculative selling by hedge funds,” Mr. Chillingworth said of BP’s decline. “I don’t think institutional investors are selling yet.”
Investors are concerned that BP’s liability for the spill could reach billions of dollars, he said.
“Huge numbers are being thrown about, but no one knows what it’s ultimately going to cost them,” Mr. Chillingworth said.
Shares of Prudential, the British insurance company, rose 7.1 percent in London after the board of the American International Group said it would not sell its Asian life insurance arm for less than $35.5 billion. The move could scupper a deal that would have provided a major repayment of the American insurer’s taxpayer-financed bailout.
The dollar was mixed against major European currencies. The euro fell 0.69 cents, to $1.2237, and the British pound rose to $1.4660 from $1.4538.
The dollar fell against its Japanese counterpart, dropping to 91.02 yen from 91.27 yen.
Asian shares fell across the board. The Tokyo benchmark Nikkei 225 stock average dropped 0.6 percent. The main Sydney market index, the S&P/ASX 200, fell 0.4 percent. In Hong Kong, the Hang Seng index fell 1.4 percent, and in Shanghai the composite index ended down 0.9 percent.
Crude oil futures for July delivery fell $1.75, to $72.22 a barrel. Comex gold rose $12.80, to $1,227.80 an ounce.
From NEW YORK TIMES published on June 1, 2010
