Stocks had slumped since the morning opening as investors weighed recent data that drove home the challenges the economy faced. Their next step: assessing the debt limit agreement’s impact on the economy and whether it could slow growth.
“As the macro data comes out, it seems like we may have more on our hands than just getting the debt ceiling raised,” said Myles Zyblock, chief institutional strategist and managing director of capital markets research at RBC Capital Markets.
“We get no default, but the bad news is there is a growth trade-off,” he said. “They had to agree on fiscal contraction that would weigh on growth.”
At the close of trading, the Standard Poor’s 500-stock index was down 32.89, or 2.56 percent, erasing all of the gains it had made this year. The Dow Jones industrial average was off 265.87 points, or 2.19 percent, to 11,866.62, recording its eighth consecutive day of declines. And the Nasdaq index fell 75.37 points, or 2.75 percent.
Uri Landesman, the president of Platinum Partners, said that investors were discounting the debt deal and, with such poor economic data, starting to question the viability of corporate earnings for rest of the year.
“Economic data has been a disaster,” he said. “It’s clunker after clunker. If the economy is desultory, how are the earnings going to excel?”
Stanley Nabi, the chief strategist for Silvercrest Asset Management Group, said he was starting to hear the word “recession” in questions from clients over the last few days.
Referring to the debt deal, he said: “That was yesterday’s story. Today’s story is what is going to happen on the economy.”
The most recent indicators were released Tuesday, when the Commerce Department said personal spending fell 0.2 percent in June, the first time it had declined since September 2009. Nominal personal income inched up by 0.1 percent in June, and wage and salary income, central to the ability of consumers to open their wallets, was unchanged in June from 0.2 percent in May, its smallest rise this year.
“With consumers still facing serious headwinds from a deteriorating housing sector, considerable debt burdens, and high costs for food and energy, the income generated by labor market recovery is absolutely critical,” said Joshua Shapiro, the chief United States economist for MFR, in a research note. “Without significant improvement in the labor market, consumer spending and hence overall real G.D.P. growth will prove disappointing in coming quarters.”
The price of Treasuries soared. The yield on the benchmark 10-year bond collapsed to 2.61 percent, compared with 2.75 percent late on Monday. For the month of July, the note was down 37 basis points to 2.80 percent, versus 3.17 percent in June.
“The challenges that we are facing economically are that the hits just keep coming,” said Lawrence Creatura, portfolio manager at Federated Investors. “We do have somewhat of a resolution to our budgetary impasse, but that does not overwhelm the fact that economically speaking that the data continues to deteriorate.”
Already, some investors were bracing for Friday, when the Labor Department releases its national report on jobs, with estimates that the economy added 85,000 nonfarm payrolls in July, according to a Bloomberg News survey, compared with the 18,000 tacked on to payrolls in June.
“This is a single-variable economy,” said Mr. Creatura. “And that dominant statistic is the jobs data. That is the number that matters, the single number that matters.”
Still, one bright spot might be the corporate sector. Second-quarter earnings are on the verge of setting a record, and records are also expected for the remaining two quarters of this year, according to a recent survey by Howard Silverblatt, S.P.’s index analyst.
“Repairing our balance sheets as a corporation and as a nation: that process of repair and healing is occurring,” said Mr. Creatura. “The nature of it is that it is slow, and we are all impatient for a full return to a robust economy, but it takes time.”
European and Asian markets were lower on Tuesday.
The FTSE 100 in London was down 0.90 percent, the CAC 40 in Paris lost 1.56 percent, and the DAX in Frankfurt was off 2.10 percent.
In Asia, the Hang Seng index in Hong Kong, which added 1 percent on Monday after the framework for the debt deal was announced by President Obama in Washington, closed down 1.07 percent on Tuesday, and the Nikkei 225 was down 1.21 percent.
Article source: http://www.nytimes.com/2011/08/03/business/daily-stock-market-activity.html?partner=rss&emc=rss