NEW YORK — Stocks and interest rates plunged Tuesday after signs of slowing economies from China to the U.S. spooked traders who were already uneasy about a global recovery.
The Dow Jones industrial average fell 268 points, or 2.7 percent. The benchmark Standard & Poor’s 500 index closed at its lowest level since October.
Interest rates fell in the Treasury securities market after demand for the safety of government debt grew. The yield on the 10-year note dropped to 2.95 percent, the first time it has fallen below 3 percent since April 2009, when the markets were in the early stages of recovery from the financial crisis. The yield is used as a benchmark for many consumer loans and mortgages.
The markets began the day by following Asian and European stocks lower. Asian exchanges fell after an index that forecasts economic activity for China was revised lower. European stocks continued the slide after Greek workers walked off the job to protest steep budget cuts.
Then, shortly after U.S. trading began, the market was hit with news that consumer confidence fell sharply this month because of worries about jobs and the overall economy.
Investors are also anxious as they wait for the Labor Department’s monthly employment report Friday. Companies have indicated that business is getting better, yet there are few signs that they are ready to hire in big numbers. The government is expected to say that the unemployment rate rose 0.1 percentage point to 9.8 percent in June.
Industrial stocks suffered some of the steepest drops over fears that a stalled global rebound will cut demand. Aircraft maker Boeing Co. led the Dow lower with a drop of 6.3 percent. Caterpillar Inc., the maker of construction and mining equipment, lost 5.5 percent. Shares of coal producers pulled energy stocks lower on worries about a slowdown.
Investors have been so burned by the financial crisis of 2008-09 that they fear any hint of a slowdown means the economy will start tanking again. And they were selling heavily at the end of the day, fearful about negative economic news that could start coming out of Asia just hours after U.S. trading ends.
Paul Zemsky, head of asset allocation at ING Investment Management in New York,said investors are wrestling with two opposing ideas of where the economy is headed. He said the more-likely case is that the recovery continues and corporate earnings growth makes stocks look cheap right now. The darker scenario is that government budget cuts, the end of fiscal stimulus, problems in Europe and a slowdown in China lead to a double-dip in the global economy.
“The central issue that any investor faces today is fire or ice,” Zemsky said. “There’s no in-between. It’s either one or the other.”
The Dow fell 268.22, or 2.7 percent, to 9,870.30, its lowest close since June 9. During the last hour, the Dow was down 326.60.
The Standard & Poor’s 500 index fell 33.33, or 3.1 percent, to 1,041.24. It was the lowest close for the S&P since Oct. 5 and the fifth drop of more than 3 percent in the past year. The index is now down 14.5 percent from its 2010 peak in April.
The Nasdaq composite index fell 85.47, or 3.9 percent, to 2,135.18.
Only about 260 stocks rose while about 2,840 fell at the New York Stock Exchange, where consolidated volume came to 6.3 billion shares, compared with a light 3.9 billion Monday.
Crude oil fell $2.31 to $75.94 per barrel on the New York Mercantile Exchange.
Zemsky said there isn’t much until the start of corporate earnings reports next month that likely will give investors solid answers about the direction of the economy. Until then, Friday’s June jobs report is the one standout. Even with a good report, investors might still be focused on earnings. The May jobs numbers were a disappointment because private employers hired only 41,000 workers.
Business, Pages 25 on 06/30/2010