Worst loss for Dow this year as stocks slump again

CHRISTINA REXRODE

AP Busi­ness Writer

NEW YORK — The stock mar­ket suf­fered its worst loss of the year Tues­day because of uncer­tainty about com­ing cor­po­rate earn­ings reports and con­cerns that the bor­row­ing costs of Spain are creep­ing close to a cri­sis level.

The decline extended the longest and deep­est slump of the year for Wall Street to five days. More than half the first-quarter gain of the Dow Jones indus­trial aver­age has been wiped out, and more than a third for the Stan­dard & Poor’s 500.

The Dow fell 213.66 points, its third triple-digit loss in four days. It closed at 12,715.93, its low­est since Feb. 2.

The dol­lar and U.S. Trea­sury prices rose as investors shifted money into lower-risk invest­ments. The yield on the bench­mark 10-year Trea­sury note fell for the fifth straight day and dropped below 2 per­cent for the first time in a month.

After the mar­ket closed, Alcoa reported much bet­ter quar­terly earn­ings than Wall Street expected, pro­vid­ing hope that the los­ing streak might end. Alcoa is the first of the 30 stocks in the Dow to report results.

“Hope­fully this would change the tone for the mar­ket for the next cou­ple of days, but a lot can hap­pen over­seas overnight. That’s the big unknown,” said Colleen Supran, a prin­ci­pal at the invest­ment adviser Bing­ham, Osborn & Scar­bor­ough in San Francisco.

Alcoa, which sells alu­minum and is watched as a barom­e­ter of the global econ­omy, reported a quar­terly profit of 9 cents per share. Ana­lysts were expect­ing a loss of 4 cents.

After nine con­sec­u­tive quar­ters of earn­ings growth, ana­lysts think earn­ings will be flat this time. Those pre­dic­tions came before Alcoa’s impres­sive results, however.

While Wall Street was still sleep­ing, Euro­pean mar­kets sold off. The main stock indexes in Spain and France closed down about 3 per­cent, the equiv­a­lent of a 400-point drop in the Dow.

The yield on 10-year Span­ish bonds rose to almost 6 per­cent. Seven per­cent is gen­er­ally con­sid­ered the level at which gov­ern­ments can no longer afford to raise money on the inter­na­tional bond markets.

The 7 per­cent level forced Greece, the last focal point of the Euro­pean debt cri­sis, to seek res­cue loans. But Spain is widely con­sid­ered too big to bail out: It makes up about 11 per­cent of the eco­nomic out­put of the coun­tries that use the euro cur­rency. Greece makes up about 2 percent.

“They’ve man­aged to put a Band-Aid on the debt cri­sis, but there’s really no solu­tion,” Supran said. “And Spain is a much big­ger prob­lem than Greece.”

The first three months of this year were the best for stocks since 1998, but investors have found plenty to fret about in April.

The los­ing streak began last Tues­day, when the Fed­eral Reserve said it was wor­ried about the strength of job growth and sug­gested it was not inclined to pro­vide fur­ther help for the economy.

The Dow fell 204 points in three days. It fell 131 more on Mon­day, the first time investors could react to a report show­ing much weaker job growth in March than in the three pre­vi­ous months.

Then, on Tues­day, the National Fed­er­a­tion of Inde­pen­dent Busi­ness reported a drop in its small-business opti­mism index, the first decline after six months of gains. It fell to 92.5 in March from 94.3 in February.

That report helped knock stocks down at the open, and with Europe to worry about, they sank all day. The S&P fin­ished down 23.61 points, its worst decline this year, at 1,358.59.

The Nas­daq com­pos­ite index, which eked out a gain in one of the past four days, ended down 55.86 points, its worst per­for­mance this year, at 2,991.22. That was its first close below 3,000 in more than a month.

Last year, the Dow’s longest los­ing streak was an eight-day, 858-point plunge in July and August, with Con­gress bick­er­ing over the gov­ern­ment debt limit and just before the S&P rat­ings agency down­graded the U.S.

On Tues­day, all but 18 stocks in the S&P 500 fin­ished lower. The worst-performing stock in the Dow was Bank of Amer­ica, which tends to take a hit when con­cerns about Europe grow stronger. Bank of Amer­ica was down 4.4 percent.

One big fac­tor in the sell-off is fear that growth is slow­ing in the world’s biggest economies. Recent eco­nomic reports from the United States and China have dis­ap­pointed investors.

The March jobs report showed a gain of 120,000, about half the monthly gain from Decem­ber through Feb­ru­ary. And an ear­lier report on Amer­i­cans’ incomes showed that when adjusted for infla­tion, they dipped slightly in Feb­ru­ary for the sec­ond straight month. With­out more earn­ings, con­sumer spend­ing will likely be constrained.

Investors are pric­ing in slower growth in the United States, said Neil Dutta, an econ­o­mist at Bank of Amer­ica Mer­rill Lynch. He pre­dicts the S&P will end the year at about 1,400, only about 3 per­cent higher than where it fin­ished Tuesday.

For now, he said, “the like­li­hood is that the sell-off is prob­a­bly not done.”

The low expec­ta­tions for earn­ings could be a bless­ing, though. Com­pa­nies may have an eas­ier time beat­ing them, which could drive up their stock prices, at least temporarily.

“CEOs have done a very good job of set­ting expec­ta­tions low,” said JJ Kina­han, chief deriv­a­tives strate­gist for TD Amer­i­trade in Chicago.

Ana­lysts have also wor­ried that high gaso­line prices could hurt the eco­nomic recov­ery. The price of oil, which almost hit $110 last month, fell $1.44 on Tues­day to $101.02.

Oil has risen from $75 in Octo­ber, largely because of ten­sion over Iran’s nuclear pro­gram and the oil embar­goes that have ensued.

Iran, which has already cut off oil ship­ments to France and Britain, declared Tues­day that it would extend the embargo to Greece, a pre-emptive strike against Euro­pean coun­tries that planned to stop buy­ing from Iran. Talks on Iran’s nuclear pro­gram are sched­uled for Saturday.

Among stocks mak­ing big moves:

— Super­valu Inc., the gro­cery chain that owns Albert­sons and Jewel-Osco, climbed 15 per­cent. The com­pany reported a quar­terly loss but out­lined turn­around plans that include clos­ing stores and slash­ing jobs.

— Best Buy fell almost 6 per­cent after announc­ing that its chief exec­u­tive had resigned with­out a per­ma­nent suc­ces­sor. The elec­tron­ics giant is strug­gling for mar­ket share in a retail world that’s been shaken up by online com­pa­nies like Amazon.

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