Stocks retreat after disappointing manufacturing reports; Dow 7-day winning streak in jeopardy

Stocks fall after weak manufacturing reports

NEW YORK — Stocks fell Thursday after another series of disappointing reports made investors more pessimistic about the economy.

The Dow Jones industrial average dropped more than 60 points, likely ending its seven-day winning streak. It was down 126 points earlier in the session. Other major indexes were down moderately. Interest rates tumbled in the Treasury market as investors worried about the economy went in search of safe investments. The yield on the 10-year Treasury note dropped below 3 percent.

A day after the Federal Reserve issued a slightly more bleak outlook on the economy, two regional reports pointed to a slowing in manufacturing activity in the Northeast. Meanwhile, the Fed reported modest growth in industrial output nationwide. And the Labor Department said that first-time claims for unemployment benefits fell last week, but that was largely due to seasonal factors.

“We’ve hit a soft spot,” Howard Ward, chief investment officer at GAMCO Growth Fund, said of the economic recovery. “The question is, are we starting to already improve or are we still falling down.”

The disappointing manufacturing reports, which followed a weeklong stock rally, made the market “susceptible to profit taking” after the market’s week-long advance, Ward said.

Industrial companies like Caterpillar Inc., General Electric Co. and United Technologies Corp. all fell after the weak manufacturing reports.

There appeared to be a shift in investors’ view of the economy. They had been upbeat over the past week on more positive economic signs, in particular forecasts from companies including Intel Corp. and Alcoa Inc. But the latest disappointing numbers now seem to be dictating investors’ moves, and analysts questioned whether investors would start buying again if companies keep reporting strong earnings and outlooks.

Analysts say traders could be stuck between the conflicting reports and may shuttle between a focus on corporate outlooks and one on economic indicators.

“It’s a huge tug of war between this dimming economic environment and strong profits. I think investors are going to be looking not so much at second-quarter profits but at management discussion and the outlook ahead,” said Jack A. Ablin, chief investment officer at Harris Private Bank.

JPMorgan Chase & Co., the first big bank to report its second-quarter earnings, said it had set aside less money to cover losses on failed loans. That is a sign that mortgage and loan defaults may be moderating. But CEO Jamie Dimon kept a cautious tone about future economic growth.

“Earnings are strong,” said Sandy Mehta, principal and chief investment officer of Value Investment Principals. “But the underlying economy is not as strong.”

In afternoon trading, the Dow Jones industrial average fell 62.96, or 0.6 percent, to 10,304.21. The Standard & Poor’s 500 index fell 6.22, or 0.6 percent, to 1,088.95, while the Nasdaq composite index fell 12.17, or 0.5 percent, to 2,237.67.

About two stocks fell for every one that rose on the New York Stock Exchange where volume came to 537.8 million shares.

Bond prices rose as investors sought safety the safety of government securities after the mixed economic reports. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.98 percent from 3.05 percent late Wednesday.

JPMorgan Chase fell 30 cents to $40.05. Caterpillar fell 70 cents to $66.00, while GE dropped 22 cents to $14.98. United Technologies fell 23 cents to $67.78.

The steep drops reported Thursday in the Empire State and Philadelphia Fed Manufacturing indexes dented optimism about the manufacturing industry, which had shown the most consistent growth coming out of the recession.

The Empire State index fell to 5.08, well below the 18.50 economists had predicted and the 19.57 reported last month. The Philly Fed index dropped to 5.1 for July. Economists had predicted it would rise to 10.0.

The Fed’s report on industrial production showed output at the nation’s factories, mines and utilities rose by 0.1 percent in June, better than the 0.1 percent drop economists forecast.

Volatility spiked again in the market after the disappointing reports. The Chicago Board Options Exchange’s Volatility index, or VIX, jumped nearly 3 percent.

The Labor Department did say Thursday that initial claims for jobless benefits fell by 29,000 to a seasonally adjusted 429,000, the lowest level since August 2008. Economists polled by Thomson Reuters had predicted claims would drop to 450,000.

However, the claims could be skewed because General Motors and other manufacturers skipped their usual July shutdowns. Normally that would lead to temporary seasonal layoffs, which did not show up in the latest figures.

The pace of the recovery slowed down beginning in May as most of the major government stimulus programs expired. There have been few signs beyond hopeful corporate outlooks that the economy is not headed for a prolonged period of minuscule growth.

“We seem to be dependent of this government stimulus but it has had a very limited effect,” said Doug Roberts, chief investment strategist for Channel Capital Research. “Now that it’s running out, what are we going to do for an Act Two?”

The euro climbed above $1.28 for the first time in more than two months Thursday as investors worried about the strength in the U.S.

Overseas, Britain’s FTSE 100 fell 0.7 percent, Germany’s DAX index fell 1 percent, and France’s CAC-40 fell 1.4 percent. Japan’s Nikkei stock average fell 1.1 percent.