April 19, 2024

For the Dow, the Week Goes From Bad to Worst

Stocks fell Friday, closing out what was the worst week of the year for the Dow Jones industrial average.

The market was dragged lower by a weak performance from retailers and companies sensitive to higher interest rates. Home builders and banking stocks were among the best performers.

Stocks had a decent start to the week, but were hit hard the last three days. The Dow retreated 2.2 percent in its worst week in 2013. The broader Standard Poor’s 500-stock index lost 2.1 percent for the week, its second-worst performance of the year.

The possibility of a cutback in the Federal Reserve’s huge bond-buying program in September has roiled the bond market, which has spilled over into stocks. The yield on the benchmark 10-year Treasury note rose to 2.83 percent, its highest level since July 2011, from 2.77 percent late Thursday. Its price, which moves in the opposite direction of the yield, fell 16/32 to 97 6/32.

“When yields are going up like this, that’s scary for most equity investors,” said Brian Reynolds, chief market strategist at Rosenblatt Securities.

Rising bond yields have a direct impact on the cost of borrowing for everyone — from homeowners trying to refinance their mortgages to companies trying to sell debt — making them a potential long-term drag on the economy. The Federal Reserve’s bond-buying programs were intended to keep the cost of borrowing as low as possible.

On Friday, the S. P. 500 lost 5.49 points, or 0.33 percent, to 1,655.83. The Dow fell 30.72 points, or 0.2 percent, to 15,081.47, and the Nasdaq composite lost 3.34 points, or 0.1 percent, to 3,602.78.

Shares of utilities and telecommunications companies, which typically perform poorly in a higher interest-rate environment, closed broadly lower. Consolidated Edison fell 75 cents, or 1.3 percent, to $56.64, and PGE of California was down 71 cents, or 1.6 percent, to $42.64. Verizon Communications fell 1.7 percent, and ATT, 0.5 percent.

Stocks in companies like utilities, pharmaceuticals and telecommunications are often purchased because they provide a higher-than-normal dividend. As Treasury yields rise, it makes all dividend-paying stocks less attractive to investors because Treasuries can provide a similar return with significantly less risk.

“You try to focus on stocks that usually benefit from higher interest rates — banks are a good example,” said John Fox, who oversees $873 million as co-manager of the FAM Value Fund.

The Dow has fallen 3.7 percent from its high of 15,658.36, which it hit two weeks ago. Even so, it is up 15 percent this year, and the S. P. 500 has climbed 16 percent.

“Keep it in perspective — we’re down modestly from what was an all-time high,” Mr. Fox said.

A multiday sell-off continued for retailers. Nordstrom gave a bleak sales outlook late Thursday that echoed forecasts this week from Walmart and Macy’s. The outlooks have raised worries that American shoppers might be curtailing spending.

Nordstrom’s stock fell $2.90, or 4.9 percent, to $56.43, making it the biggest decliner in the S. P. 500.

The retail industry is a closely watched part of the American economy because consumer spending makes up roughly 70 percent of economic activity. The disappointing outlooks are worrisome because they take into account the lucrative back-to-school shopping season.

“It’s left us scratching our heads,” Mr. Fox said. “It really forces you to ask the question: ‘Is the consumer slowing down?’ ”

Investors have also been concerned about what will happen to the stock market — and the economy — if the Fed begins winding down its bond-buying program in September. Some investors think that the Fed’s program has been a large contributor to the stock market’s record run.

“The big question is, will the Fed eliminate the bond-buying program in September, and, if so, how they will they remove the bond buying,” said Frank Davis, director of sales and trading for LEK Securities.

With the markets declining, investors shifted into a safer asset — gold. Its price rose $10.10, or 0.7 percent, to $1,371.70. Gold had its third-best week this year, rising 3.7 percent.

Also in focus were home builders. The government reported that new home construction was up 6 percent in July to a seasonally adjusted rate of 896,000.

Shares of the home builder PulteGroup closed up 2.3 percent, and Lennar was up 1.8 percent.

Article source: http://www.nytimes.com/2013/08/17/business/daily-stock-market-activity.html?partner=rss&emc=rss