Stocks slump as dollar strengthens, investors seek safe havens; 3M, McDonald’s disappoint

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Stock market slides as dollar strengthens

NEW YORK — Investors dumped stocks and sought safe-haven assets like the dollar and Treasurys on signs that the global economy is still struggling.

The Dow Jones industrial average lost 100 points in afternoon trading Tuesday but recovered some of its earlier losses.

A disappointing earnings forecast from Dow Jones industrials component 3M Co. and a weak sales report from McDonald’s Corp., another Dow company, pulled stocks lower. The reports overshadowed an increased profit forecast from FedEx Corp.

Reports in Britain and Germany signaled that manufacturing remains weak, while Japan’s government approved $81 billion in stimulus measures to keep its economy out of recession. Credit rating agencies warned about debt problems in Dubai and Greece.

Investors sent the dollar and Treasury prices higher in response to the day’s news. Commodities fell as the dollar rose. A stronger dollar makes commodities more expensive for buyers overseas, and hurts profits at companies that have large international operations.

After the huge rally in stocks and commodities this year, investors are looking for clues about where the economy is headed and how best to position their portfolios for next year. Investors are uncertain of how long the environment of low interest rates and a weak dollar that helped fuel the market’s rally will last.

Philip S. Dow, managing director of equity strategy at RBC Wealth Management in Minneapolis, said 3M’s forecast drew attention from FedEx and that the day’s retreat is in order after the steep gains in stocks over all.

“People were so enthused with FedEx then got a little disappointed with 3M,” he said. “I just think it’s a rest.”

At the same time, there are still plenty of doubts about the economic recovery to drive cautious investors to pad their portfolios with safe havens. With the Standard & Poor’s 500 index up 63.1 percent since early March, many investors are looking to protect their gains.

Stocks came off their lows of the day as President Barack Obama proposed spending on infrastructure projects as well as increased tax cuts for small businesses.

The speech comes after the government’s unemployment report Friday showed far fewer job losses in November than expected. However investors still have doubts about how strong a recovery will be with one in 10 Americans out of work.

In late afternoon trading, the Dow fell 104.30, or 1 percent, to 10,285.81. The Dow fell as much as 140 points earlier.

The broader Standard & Poor’s 500 index fell 10.78, or 1 percent, to 1,092.47, while the Nasdaq composite index fell 13.76, or 0.6 percent, to 2,175.85.

Stocks finished little changed on Monday after reassurance from Fed Chairman Ben Bernanke that interest rates will remain low to support a recovery failed to galvanize investors.

Shares of 3M fell after the consumer products maker predicted adjusted earnings of $4.50 to $4.55 per share for the full year. That’s below a profit of $4.57 per share forecast by analysts. The stock fell $1.02, or 1.3 percent, to $76.89.

McDonald’s fell $1.43, or 2.3 percent, to $60.50 after the world’s largest fast-food chain said monthly sales in the U.S. fell in November.

FedEx raised its earnings forecast for the November quarter late Monday. Shares of the package delivery company rose $2.61, or 3 percent, to $90.13. Investors watch FedEx because the volume of its business is seen as an indicator of the overall strength of the economy.

The Kroger Co. tumbled $2.83, or 12.4 percent, to $20.02 after the nation’s largest grocery chain posted an unexpected loss and lowered its sales and profit forecasts for the year as price competition cuts into its business.

Beyond the corporate news, analysts said the rising dollar dominated trading.

Peter Cardillo, chief market economist at the brokerage Avalon Partners Inc. in New York, predicts the dollar will resume its slide and remove pressure from stocks.

“This is a short-term correction in the dollar and the same with the other markets and I don’t think it’s going to be long-lasting,” he said.

The slump in stocks and gains in Treasurys came as credit rating agencies pointed to what they saw as ominous debt loads around the world. One agency cut its ratings on six Dubai state-linked companies due to worries about their growing debts. Two weeks ago debt problems in Dubai pushed world markets down sharply as investors worried that the troubles would unleash a wave of failing debt.

Meanwhile, Fitch Ratings lowered Greece’s credit rating Tuesday because of growing debt.

Moody’s Investors Services also said the state of public finances in the U.S. and Britain are troubling.

Bond prices rose, sending yields lower. The yield on the benchmark 10-year Treasury note fell to 3.39 percent from 3.43 percent late Monday.

The ICE Futures US dollar index, which tracks the dollar against other major currencies, rose 0.7 percent.

Gold prices fell for a third straight day.

Crude oil fell $1.31 to settle at $72.62 per barrel on the New York Mercantile Exchange.

More than two stocks fell for every one that rose on the New York Stock Exchange, where volume came to 889.3 million shares compared with 774.4 million shares traded at the same point Monday.

The Russell 2000 index of smaller companies fell 4.75, or 0.8 percent, to 598.78.

Overseas, Britain’s FTSE 100 fell 1.7 percent, Germany’s DAX index slid 1.7 percent, and France’s CAC-40 fell 1.4 percent. Japan’s Nikkei stock average fell 0.3 percent.