Dow slips to worst week of 2013

2013-08-16T17:03:00Z Dow slips to worst week of 2013Ken Sweet AP Markets Writer nwitimes.com
August 16, 2013 5:03 pm  • 

NEW YORK | Stocks fell Friday, closing out what was the worst week of the year for the Dow Jones industrial average.

The market was dragged lower by a weak performance from retailers and companies sensitive to higher interest rates. Homebuilders and banking stocks were among the best performers.

Stocks had a decent start to the week, but investors were hit hard the last three days. The Dow retreated 2.2 percent for the week, its worst in 2013. The broader Standard & Poor's 500 index lost 2.1 percent for the week, its second-worst performance of the year.

The possibility of a cutback in the Federal Reserve's massive bond-buying program in September has roiled the bond market, which has spilled over into stocks. The yield on the benchmark U.S. 10-year Treasury note rose to 2.83 percent, its highest level since July 2011. A week ago, the yield was 2.58 percent.

"When yields are going up like this, that's scary for most equity investors," said Brian Reynolds, chief market strategist at Rosenblatt Securities.

Investors have been concerned about what will happen to the stock market -- and the U.S. economy -- if the Fed begins winding down its $85 billion-a-month bond-buying program in September. Some investors think the Fed's program has been a large contributor to the stock market's record run.

Rising bond yields have a direct impact on the cost of borrowing for everyone — from home owners trying to refinance their mortgages to companies trying to sell debt - making them a potential long-term drag on the economy. The Federal Reserve bond-buying programs were designed to keep the cost of borrowing as low as possible.

On Friday, the S&P 500 lost 5.49 points, or 0.33 percent, to 1,655.83. The Dow fell 30.72 points, or 0.2 percent, to 15,081.47 and the Nasdaq composite lost 3.34 points, or 0.1 percent, to 3,602.78.

Shares of utilities and telecommunications companies, which typically perform poorly in a higher interest-rate environment, closed broadly lower. New York-based utility Consolidated Edison Inc. fell 75 cents, or 1.3 percent, to $56.64 while California's PG&E was down 71 cents, or 1.6 percent, to $42.64. Verizon Communications Inc. and AT&T Inc. fell 1.7 percent and 0.5 percent, respectively.

Stocks such as utilities, pharmaceuticals and telecommunications are often purchased because they provide a higher-than-normal dividend. As Treasury yields rise, it makes all dividend-paying stocks less attractive to investors because Treasuries can provide a similar return with significantly less risk.

"You try to focus on stocks that usually benefit from higher interest rates -- banks are a good example," said John Fox, who oversees $873 million in assets as co-manager of the FAM Value Fund.

The Dow has fallen 3.7 percent from its all-time high of 15,658.36 two weeks ago. Even so, the blue-chip index is up 15 percent this year while the S&P 500 has climbed 16 percent.

"Keep it in perspective — we're down modestly from what was an all-time high," Fox said.

Retailers continued their multi-day selloff. Nordstrom Inc. gave a bleak sales outlook late Thursday that echoed similar forecasts from Walmart Stores Inc. and Macy's Inc. earlier this week. The outlooks have raised worries that U.S. shoppers might be pulling back on spending.

Nordstrom's stock fell $2.90, or 4.9 percent, to $56.43, making it the biggest decliner in the S&P 500.

The retail industry is a closely watched part of the U.S. economy as consumer spending makes up roughly 70 percent of economic activity. The disappointing outlooks are worrisome because they take into account the back-to-school shopping season, typically the second-biggest shopping period for U.S. retailers.

"It's left us scratching our heads," Fox said. "It really forces you to ask the question: 'is the consumer slowing down?'  "

Copyright 2014 nwitimes.com. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

activate-button-3
Follow The Times

In This Issue

Professionals on the Move Banner
Get weekly ads via e-mail

Poll

Loading…

How would you characterize race relations in the region?

View Results