Weak manufacturing and construction spending reports knock stocks down on second half's first day.
July 1, 2003: 11:53 AM EDT
NEW YORK (CNN/Money) - U.S. stocks tumbled at midday Tuesday -- the first day of the second half of the year -- amid disappointment that the morning's economic reports showed few signs of the much-hoped for second-half recovery.
After closing off their best quarter in years with a whimper Monday, all major indexes fell Tuesday, as of around 11:45 a.m. ET. The Dow Jones industrial average (down 77.62 to 8907.82, Charts) and the S&P 500 index (down 8.14 to 966.36, Charts) both fell just under 1 percent, while the Nasdaq composite (down 16.10 to 1606.70, Charts) fell a little more than 1 percent.
Stocks have fallen beneath some key technical support levels, said Tim Heekin, head of stock trading at Thomas Weisel Partners, and that combined with the ISM and construction numbers this morning has led to the day's selloff.
The release of a weaker-than-expected survey that showed manufacturing still is contracting on a national scale added to the market's losses. The Institute for Supply Management's (ISM) June manufacturing index came in at 49.8 when it was forecast to have risen to 51.0 from 49.4 in May. Any reading below 50 is seen as a sign that the manufacturing sector is still in decline. The index has not shown a reading above 50 since before the Iraq war.
The negative impact of the ISM survey was compounded by news that construction spending fell an unexpected 1.7 percent in May. The day's last batch of data, a midday tally of auto and truck sales for June, is also expected to be discouraging, showing little or not change from May.
The economic news is of particular importance to investors looking for evidence that a recovery is underway. Stocks have surged for more than three months on the belief that the second half of the year will bring fresh strength to the economy. Now that the second half is here, any sign that such strength is either not there or not that strong, could lead to exaggerated downward moves in the market, just as every sign of even modest pickup led to big rallies on Wall Street in the past three months.
The second quarter was one of the best quarters on Wall Street in years. On Monday, the S&P 500 finished out its best quarter in 4-1/2 years, while the Dow and Nasdaq closed their best quarters in 1-1/2 years.
But stocks drifted Monday and could be in for the same for the rest of the week. The week is a holiday-shortened one and this is likely to mean increased volatility and low volume. The market will close Thursday at 1 p.m. ET ahead of the Fourth of July holiday weekend and will be closed Friday.
But beyond this morning's trading, "I think people started selling six or seven sessions before the end of the quarter with the thought that there would be a lot of selling Monday, so they wanted to get in first," Heekin added. "You're at a point now where the path of least resistance is down."
Heekin says the direction will likely be sideways and down on weak volume for the next few weeks until the period of corporate earnings reporting gets going again. Ahead of that, the market could potentially take a strong reaction to Thursday's monthly unemployment report, forecast to show continued weakness.
Sun Micro, AMAT among sliders
The declines Tuesday were fairly broad, with a variety of big-cap technology stocks on the Nasdaq falling, including Sun Microsystems (SUNW: down $0.12 to $4.53, Research, Estimates) and Applied Materials (AMAT: down $0.34 to $15.50, Research, Estimates). On the Dow, 26 out of 30 issued slid.
The biggest decliner was heavy machinery maker Caterpillar (CAT: down $1.93 to $53.73, Research, Estimates), which lost 4 percent. The firm announced it would purchase sector mate Terex (TEX: down $1.83 to $17.69, Research, Estimates)'s mining truck business and that Terex would buy its mining shovel technology. Terms of the deals were not announced.
Biotech stocks fell on weakness in Millennium Pharmaceuticals (MLNM: down $2.03 to $13.70, Research, Estimates), which shed 13 percent in active Nasdaq trade. Late Monday, the firm said it had teamed up with a Johnson & Johnson (JNJ: up $0.09 to $51.79, Research, Estimates) unit to market its recently approved cancer drug. Analysts said Monday that the selloff may have been due to investors taking a negative response to the terms of the deal.
Market breadth was decidedly negative with almost two stocks falling for every one that rose on the New York Stock Exchange and more than two falling for every one that rose on the Nasdaq. Volume on the NYSE stood at 500 million shares. Some 650 million shares changed hands on the Nasdaq.
U.S. Treasury bonds gave back gains accrued right after the weak economic reports. The 10-year note fell 1/32 of a point in price, boosting its yield to 3.51 percent. The manufacturing report in particular pressured the dollar, which fell versus both the euro and yen.
NYMEX light sweet crude oil futures fell 29 cents to $29.90. COMEX gold rallied $3.60 to $349.90 an ounce.
Stock markets in Europe fell. Stocks in Asia were mixed overnight
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