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By Michael E. Kanell
Atlanta Journal-Constitution Staff Writer
Tuesday, November 28th, 2006
Investors came back to work Monday and discovered that the dollar had been dropping, retail sales were so-so and oil prices were up —- and promptly sent stocks into their steepest slide in months. The mix of news stirred worries that the U.S. economy was weakening and that interest rates may climb to keep foreign money buying American assets.
The result was a sell-off. The Dow Jones industrial average fell 158.46 points to close the day at 12,121.71 while the technology-heavy Nasdaq dropped 54.34 points to 2,405.92 —- its worst day since early June.
The losses were broad-based, with more than 90 percent of the stocks on the Standard & Poor's 500 down for the day.
Yet it was just one day of selling that followed months of solid stock gains, said Emily Sanders, president and chief executive of Sanders Financial Management in Norcross. "Today's drop doesn't really concern us," she said. "We see it as a pullback on a somewhat over-bought market."
In recent days, the Dow has repeatedly reached record highs, seemingly rejecting concerns about a slowing economy. After all, many mainstream economists said that the anemic growth of the third quarter was the bottom and that a pickup is coming.
For instance, Diane Swonk, chief economist for Chicago-based Mesirow Financial, predicts a slight improvement in the current quarter. Sluggish growth will give way to a "re-acceleration" in the second half of next year, she said.
Another spike in energy costs could dampen that growth by stifling spending by both consumers and companies. And energy markets Monday raised that specter, as oil prices again climbed above the $60-a-barrel line.
Still, that is more than 20 percent below the crests of midsummer.
Consumers, who carry roughly 70 percent of the economy, have been only slightly less enthusiastic in their spending this fall than optimists had predicted. Retail sales the day after Thanksgiving —- often seen as the barometer of holiday spending —- were up 6 percent from a year ago, according to the National Retail Federation.
Despite that encouragement, investors were clearly spooked by news that same-store sales for mighty Wal-Mart were down, Swonk said.
Among the market leaders that led the way downward: Wal-Mart dropped $1.29 a share to finish the day at $46.61. Boeing lost $2.40 a share to close at $87.37. American Expresss shed $1.08 a share, sliding to $58.82.
Among other active stocks was Ford, whose shares dropped 36 cents —- more than 4 percent of its value —- to close at $8.16.
Through the fall, optimism has been spiced with faith in the Federal Reserve. The nation's central bank, which had burdened the economy with higher short-term interest rates, now seemed poised to again start trimming them.
But the dollar's slide makes U.S. assets —- stocks, bonds and companies —- less attractive. If a weaker dollar does scare off potential investors, interest rates would have to rise to keep foreign money flowing.
Rising short-term rates would hurt credit-happy consumers and companies. If long-term rates followed suit, it could further damage an already wobbly housing market.
With the United States running a huge deficit in both trade and other international flows of money, many economists have long predicted a drop in the dollar. Yet the buck has defied those projections, propped up by the flow of foreign investment.
"There are a lot of bits and pieces coming together that seem to be pushing the dollar down, but of course, I've had that feeling before," said economist Darel Paul of Williams College in Williamstown, Mass.
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