Poor Japanese data hits US stocks
US stocks suffered their worst loss in seven weeks yesterday as weak data from Japan and a disappointing outlook from retailer Lowe’s dampened hopes about the economy’s growth.
Japan’s gross domestic product showed its economy pulled out of recession in the second quarter, but at a slower pace than expected, prompting a sell-off in major Asian markets that spilled over into Europe and North America.
Lowe’s stock dropped 10.3 per cent as the US home improvement company gave investors few reasons to be positive about the outlook for the consumer.
The results amplified worries about weak consumer spending following last week’s poor data on US consumer sentiment and retail sales.
“The GDP number in Japan sort of got things started when it missed this morning,” said Stephen Massocca, managing director of Wedbush Morgan. But, he said, the sell-off in China was a big worry.
“A lot of people have seen China as kind of the reason we rallied to begin with. The Chinese economy was doing so well, it was leading us out (of the recession), and now that story is very much in jeopardy.”
US selling was broad-based, but shares sensitive to the economy’s cycles fell the most, including industrials, down 2.9 per cent, and financials, down 4.3 per cent. The Dow Jones index of home builders’ shares fell 3.3 per cent.
The Dow Jones industrial average dropped 186.06 points, or 2 per cent, to end at 9,135.34. The Standard & Poor’s 500 Index slid 24.36 points, or 2.43 per cent, to 979.73. The Nasdaq Composite Index lost 54.68 points, or 2.75 per cent, to 1,930.84.
The Dow and the S&P 500 had their worst one-day percentage sell-offs since 2 July, while the Nasdaq had its worst since 22 June. The S&P 500, however, is still up about 45 per cent from its early March lows.
Shares of heavy equipment maker Caterpillar fell 4.5 per cent to $43.95, leading the Dow’s major decliners.
The health-care sector outperformed other groups, with managed care companies boosted by the view that a public health-care plan was fading.
In the retail sector, Lowe’s gave a third-quarter earnings outlook that was below expectations, and said it was slowing plans for expansion. Chief executive Robert Niblock said consumers remain under pressure even though housing is showing signs of bottoming out.
Shares of rival Home Depot, scheduled to report results tomorrow, dropped 3.8 per cent to $26.11.