Wall Street suffers on stimulus fears

US STOCKS fell to their lowest level in 10 weeks yesterday as talk of a second government stimulus plan heightened fears that the economy is not yet on the path to recovery and that the corporate earnings season starting this week will be weak.

A member of the Obama administration’s economic advisory panel said the United States should plan to possibly provide a second round of stimulus funds to prop up the economy.

The comments come as investors question earlier optimism for a quick recovery, which had driven stocks as much as 40 per cent higher since early March.

“It’s clear that over the last three plus weeks that investors are becoming concerned that the recovery in the economy will not come as soon as expected and will not be as strong as expected,” said Hugh Johnson, chief investment officer of Johnson Illington Advisors.

Cyclical stocks in the materials, energy, and industrial sectors, which had ridden a recent upswing in raw material prices on recovery hopes, led the market down as commodity prices eased. Copper, a barometer of global economic strength, fell nearly 2 per cent.

Caterpillar, a maker of heavy machinery for construction and mining companies, shed 4.5 per cent to $30.29.

The Dow Jones industrial average dropped 161.27 points, or 1.94 per cent, to 8,163.60. The Standard & Poor’s 500 Index fell 17.69 points, or 1.97 per cent, to 881.03. The Nasdaq Composite Index lost 41.23 points, or 2.31 per cent, to 1,746.17.

An initial snapshot of the second-quarter performance of natural resource companies will come today when Alcoa kicks off quarterly earnings season. The aluminum producer, a Dow component, is expected to post a third consecutive quarterly loss.

S&P 500 corporate earnings are expected by analysts to have declined about 36 per cent from a year ago. That would be roughly the same as the decline seen in the first quarter.

Doubts about the strength of an economic recovery and subsequent demand for oil have sent crude prices tumbling in the last week. Crude oil futures fell 1.8 per cent yesterday and is down about 14 per cent from the intraday peak hit on 30 June. Its slide has pressured energy stocks.

Oil services company Schlumberger fell 4.4 per cent to $49.20 while blue chip Exxon Mobil lost 2.3 per cent to $66.56. The S&P energy sector index lost 2.5 per cent.