NEW YORK (CNNfn) - U.S. stock markets plunged at the market opening Thursday as signs of slowing economic growth and rising inflation chased investors away from U.S. securities markets.
About an hour before the market opened, Wall Street players learned that the economy grew at a rate of 2.3 percent in the second quarter, lower than both the previous quarter and market expectations for the latest three months. But what really spooked the market was news that the employment cost index, a broad measure of employment costs including wages and benefits, jumped 1.1 percent in the second quarter, compared to expectations for an increase of less than 1 percent.
The ECI, a gauge of labor inflation and an indicator known to be closely watched by Federal Reserve Chairman Alan Greenspan, comes only a week after the Fed chief warned investors that the central bank is ready to act "forcefully" and raise interest rates at the first sight of rising price pressures. The Federal Open Market Committee will meet Aug. 24, and some on Wall Street have begun to speculate the meeting could produce a rate increase.
So far, in almost nine years of robust economic expansion, productivity gains have helped offset inflationary pressures, leading the Fed to leave interest rates relatively low and stable. The central bank even adopted a neutral bias, signaling a willingness to remain inactive after its last interest rate increase June 30.
Shortly after 10 a.m. ET the Dow Jones industrial average was 136.46 points, or 1.1 percent, lower at 10,835.61. Losers trounced gainers 1,785 to 540 as 117 million shares changed hands on the New York Stock Exchange.
The Nasdaq Composite tumbled 38.77, or 1.3 percent, to 2,667.07. The S&P 500 index lost 16.20, or 1.2 percent, to 1,349.20.
The bond market also lost ground quickly after the ECI number became public. The bellwether 30-year Treasury bond lost 26/32 of a point in price, its yield rising to 6.07 percent from 6.01 percent at the close Thursday.
The dollar, which normally would benefit from higher interest rates, also headed south, losing value against both the yen and the euro amid the general flight out of U.S. assets.
Rate sensitive stocks suffer
In the stock market, financial services and technology issues, both heavily linked to the direction of interest rates, staged the fastest and deepest retreat. While rising rates would mean less business for banks and other lenders, technology companies, which rely on borrowing for their rapid expansion, also stand to lose if the cost of money becomes higher.
Among the Dow's financial components, American Express (AXP) declined 3-5/8 to 137-5/8, Citigroup (C) fell 7/8 to 46-1/2 and J.P. Morgan (JPM) lost 1-5/8 to 132-3/8.
The two leading technology components of the 30 blue chips index, IBM and Hewlett Packard, also added to the Dow's loss. IBM (IBM) shed 1-15/16 to 126-7/16 and Hewlett Packard (HWP) dropped 2 to 107-15/16.
Their decline was followed by losses in other technology leaders, with Microsoft (MSFT) shedding 1-3/8 to 88-5/8 and Cisco Systems (CSCO) eased 1-1/8 to 62-3/16.
Strong earnings counter the selling
Despite the overall bearish tone in the market, strong second-quarter earnings helped several major stocks avoid the selling spree and crawl higher.
Shares of Procter & Gamble (PG) climbed 1-5/16 to 87-7/16 after the household product maker reported second-quarter results that exceeded market expectations.
Dow component 3M (MMM) advanced 7/8 to 90 also after beating market forecasts with its second-quarter earnings.
In the day's deal news and speculation, shares of long-distance provider Sprint (FON) gained 2-11/16 to 53-15/16 following reports that Deutsche Telekom is interested in the company.
Also in the news, shares of Apple Computer (AAPL) eased 3/16 to 54-3/16 even following news that the company has reached a deal with America Online (AOL) to develop a product that would allow Apple Computer users to communicate with people using AOL's Instant Messenger service. Shares of AOL fell 2-9/16 to 100-3/16. 
|
