Wall Street: Wednesday close
A MODIFIED 'Goldilocks theory' - that the US economy had gone from too cool to too hot too fast - sent shares tumbling. Analysts said investors had turned skittish on fears that rising interest rates spurred by the economy's rapid rebound could pinch off an anticipated recovery in profits.
The Dow Jones Industrial Average, which started the day at nine-month highs, dropped 133.68 points or 1.3% to 10,501.57. The Nasdaq Index shed 48.00 points or 2.6% to 1832.87.
Higher interest rates, hinted at by the Federal Reserve Board on Tuesday when it shifted its bias to neutral after cutting rates 11 times in the past 14 months, would dampen hopes of a strong rebound in profits, analysts warned.
One analyst said an 'anti-Goldilocks' situation was emerging with the economy threatening to become 'too hot'. 'If the economy comes back at 6% in the first quarter, you have to believe the Fed will start raising rates quite soon and higher rates will pressure stocks,' he said. 'The worry is always that higher rates will crimp demand by cutting the consumer's zest and ability to spend.'
Latest data underscored the speed at which the world's biggest economy appears to be emerging from one of the shallowest recessions on record. New housing starts jumped 2.8% in February to their highest in three years.
Financial services shares fell. American Express retreated 69 cents or 1.6% to $41.84, JP Morgan lost 90 cents or 2.5% to $35.19 and Goldman Sachs, which issued a negative report on the sector, dipped $1.20 or 1.3% to $89.85.
Feeding into market negativity was a call from Salomon Smith Barney cautioning that demand for Intel's semiconductors may not be as strong as hoped. Intel, which is a component of the Dow as well as major Nasdaq indices, tumbled $1.19 or 3.8% to $30.53.
The Intel decline weighed on other tech leaders that could also be hurt by sub-par demand and a lack of pricing power. IBM slumped $1.99 or 1.9% to $105.50, Microsoft lost $2.13 or 3.4% to $60.10 and Cisco Systems gave up 72 cents or 4.3% to $16.02.
Shares in pharmaceuticals maker Bristol Myers-Squibb, which started the day near a 52-week low, tumbled $7.57 or 16% to $41.08 after an important heart drug did not appear to outperform generic rivals in patient trials.
Hewlett-Packard, which fell 2.3% on Tuesday after its chief executive Carly Fiorina claimed victory in her fight to push through merger with Compaq Computer, slid another 60 cents or 3.2% to $18.20. Compaq was marked down 27 cents or 2.4% to $10.87 as its shareholders gathered to vote on the deal.
Among Dow components, AT&T shed 56 cents or 3.6% to $15.19 and Walt Disney eased 30 cents or 1.2% to $24. General Electric fell $1.10 or 2.8% to $38.80 after Pimco, a major bond trader, said its short-term debt was unusually high, leaving it vulnerable to rising rates.
