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Stocks slide after jobs, inflation reports

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2010-10-15 08:10

STOCKS dipped yesterday after concerns about another disappointing report on jobs. But losses were held in check by expectations the Federal Reserve will act soon to strengthen the economy.

The Dow Jones industrial average fell 32 points in midday trading. In recent months, a disappointing jobs report would have likely led to a bigger sell-off in stocks. However losses following weak economic reports have been limited recently because such disappointment supports predictions the Fed will step in to support growth.

"Good news is good news and bad news is good news," said Sarah Hunt, a research analyst at Alpine Mutual Funds. The Fed's next meeting ends Nov. 3 and it is widely expected an announcement on actions to stimulate the economy will be announced then.

Traders sent the dollar lower and gold higher yesterday because of the likely Fed move. The Fed is expected to buy government bonds, which would drive down interest rates down from already low levels. That makes gold and other currencies where interest rates are higher more attractive than the dollar.

Gold hit another record high, while the dollar fell to a 15-year low against the yen and touched its lowest level against the euro since January.

"People are pretty focused on what the Fed is going to do," said Russell Croft, portfolio manager of the Croft Value Fund. Fed chairman Ben Bernanke is scheduled to give a speech Friday that could provide more details about how much money the central bank might pump into the economy.

The Dow fell 31.59, or 0.3 percent, to 11,064.26 in midday trading.

The Standard & Poor's 500 index fell 5.58, or 0.5 percent, to 1,172.52, while the Nasdaq composite index fell 7.20, or 0.3 percent, to 2,434.03.

Financial shares were the primary drag on the market as concerns grew about banking foreclosure procedures. Shares of big banks like JPMorgan Chase & Co. and Bank of America Corp. dropped sharply as they have suspend foreclosing on homes to review their practices.

The government said yesterday that unemployment benefits rose last week for the first time in three weeks. Claims remain stuck at levels that signal employers are not ramping up hiring.

High unemployment remains a key obstacle to a stronger economy and any Fed action would be partially aimed at reviving job growth.

Low inflation is also a concern for the Fed. At its meeting last month, the Fed hinted that future bond purchases would help get inflation back to more historically normal levels. The lower interest rates are also aimed at sparking new borrowing and spending by companies and consumers. More spending would drive prices for goods higher.

The Producer Price Index, a measure of the cost of goods before they reach consumers, rose 0.1 percent last month excluding volatile energy and food costs.

Bond prices were mixed yesterday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 2.44 percent from 2.42 percent late Wednesday. It has been falling regularly in recent weeks because the Fed will likely ramp up its purchase of the bonds to help the economy.

Gold touched a record of US$1,388.10 an ounce before pulling back to US$1,375.60 an ounce.

Bank of America fell 69 cents, or 5.2 percent, to US$12.60, while JPMorgan Chase dropped US$1.18, or 3 percent, to US$38.66. Citigroup Inc. fell 20 cents, or 4.7 percent, to US$4.05.




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