Fellows

Dow Jones drops 179 points

By KRISTINA PETERSON
NEW YORK—U.S. stocks sank as discouraging jobs and manufacturing data sent stocks tied to the economic recovery sliding.

The Dow Jones Industrial Average dropped 179 points, on pace to put an emphatic end to its two-day winning streak. The major benchmark indexes are now in the red for the week, month and year.

An unexpected surge in jobless claims startled investors, eclipsing Intel’s announcement that it will acquire McAfee.

“Jobless claims have been inching back up and that’s not a good trend,” said Michelle Gibley, senior market analyst at the Schwab Center for Financial Research. Companies uncertain about the economy, taxes and consumers’ ability to open their wallets are reluctant to take on new employees, she said. “When people are uncertain, they postpone decisions—decisions to hire, decisions to spend, decisions to invest and that’s the environment we’re in right now.”

The week’s uptick in deal activity and the stream of weak economic data sent conflicting messages to the stock market. Recent downbeat data have shown stagnant hiring, sluggish consumer spending and a rebound that has yet to take hold. That has punished the stock market.

The Dow declined 1.5% to 10262, weighed by a slide in economically sensitive General Electric, which fell 3.4%. Chip giant Intel dropped 3.1% after it agreed to pay $7.68 billion to acquire computer-security software maker McAfee, whose shares soared 58%.

The Nasdaq Composite fell 1.6% to 2180. The Standard & Poor’s 500-share index dropped 1.7% to 1076, weighed by its cyclical materials and industrial sectors as the economic outlook darkened. Honeywell International fell 3.6%, Fastenal, which makes nuts and bolts, dropped 3.6% and transportation company Ryder System was off 3.4%.

Traders also noted that the Dow Jones 20 Transportation Average, seen as an economic barometer, sank 2.9% in an ominous sign for the broad market. Shipping giant FedEx slid 3.2%, while railroad company Union Pacific fell 2.6%.

August vacations continued to keep trading volume light. After nearly four hours of trading, just under 2.6 billion shares had traded hands in New York Stock Exchange Composite volume, on pace to fall under the daily average of 5.1 billion.

On Thursday, the economic indicators outweighed encouraging corporate news. The latest spurt of mergers and acquisitions has spurred hopes that companies will use the $2 trillion of cash sitting in their coffers to make deals and grow their businesses.

Intel’s move to acquire computer-security software maker McAfee is failing to buoy the stock market, as economic data again darkens the outlook for the economy sparking sharp moves across financial markets. The Philadelphia Federal Reserve’s manufacturing index unexpectedly dropped, adding to mounting concerns over the stagnant labor market. Steve Wisnefski, Mike Reid and Michael Casey discuss
.Though the technology sector had jumped earlier in the week after Dell agreed to acquire 3Par, Thursday’s deal activity did less to stoke the sector. Still, investors said the recent uptick in mergers and acquisitions was a bright spot as second-quarter earnings taper off and economic data continue to disappoint.

“This is a logical thing to have happen,” said Dick Del Bello, senior partner at Conifer Group. “Companies are sitting on piles of cash and they’re trying to find ways to take advantage of that without increasing their risk profile dramatically.”

Among stocks in focus, discount retailer Dollar Tree gained 4.9% after its fiscal second-quarter earnings jumped 37% as new stores contributed to the top line and same-store sales continued to improve. The retailer also boosted its view for the year.

Brocade Communications Systems fell 6% despite swinging to a fiscal third-quarter profit following higher prior-year charges as revenue missed analysts’ expectations and margins fell.

In U.S. economic data, the Philadelphia Fed index was weaker than expected and the Conference Board’s index of leading indicators rose 0.1% in July, less than the 0.2% gain expected.

The morning’s labor market snapshot also discouraged investors, who had been hoping to see claims fall below 450,000 instead of hitting their highest level since Nov. 14. Initial unemployment claims unexpectedly rose by 12,000 to 500,000 in the week ended Aug. 14, the Labor Department said Thursday. Economists had expected to see a decline of 4,000.

More
Keep an Eye on Jobless Claims
More: Economics blog | MarketBeat blog
.In the currency markets, the dollar strengthened against the euro, but weakened against the yen. Paring much of its earlier gains, the euro was recently trading at $1.2822, down from $1.2859 late Wednesday in New York. Crude-oil prices fell below $75 a barrel, while gold futures advanced. Demand for safe-haven Treasurys increased, with the 10-year note up, pushing its yield down to 2.56%.

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