U.S. stocks tumbled Thursday as concerns about a subdued economic recovery played in the minds of investors. Safer bets like dollar strengthened and oil prices slumped. As investors turned to safe havens, Treasury prices rose, sending corresponding yields lower. Yields on three-month bills, considered one of the safest bets, turned negative for the first time since December. A Bank of America Merrill Lynch downgrade of semiconductor industry also added to the downward pressure.
The spike in bond prices came even as the Treasury announced plans to auction a record $118 billion in new notes next week – an auction schedule of $44 billion 2-year notes on Monday, $42 billion 5-year notes Tuesday, and $32 billion 7-year notes on Wednesday.
The Dow, which had plunged as much as 170 points during the session, ended down 93.87 points, or 0.9%, to 10,332.44. The broader Standard & Poor's 500 index fell 14.90 points, or 1.3%, to 1,094.90, while the tech-heavy Nasdaq composite index dropped 36.32 points, or 1.7%, to 2,156.82. Wall Street’s fear gauge, the CBOE Vix, jumped more than 4%. Crude prices dropped $1.93 to $77.46. Gold prices rose to their fifth straight record close, up 70 cents to $1141.90.
As glimmers of a full-blown economic recovery fade, investors have increasingly become intolerant, locking in profits at every opportunity. Also, a lack of conviction on part of the market to push beyond the current rally has been a dampener and concerns of an asset bubble build-up due to accommodative monetary policies have diminished risk appetites, sending daily average volume to levels of only about 1 billion.
Nevertheless, to show not all is bad, the OECD raised its growth estimates for its 30-country members to 1.9% in 2010 from June's estimate of a 0.7% growth, and to a 2.5% GDP expansion in 2011.
Tech shares, already up 54.3% year-to-date, fell 1.7% Thursday, after Merrill's analyst slashed 2010 global growth targets, and downgraded ten companies in the semiconductor sector. Intel (NASDAQ:INTC) shares fell 4.1%, and Texas Instruments (NYSE:TXN) retreated 3.4% after the downgrade. Dell (NASDAQ:DELL) shares plunged 6.1% in premarket trading, after the company reported earnings that missed analysts’ projections.
Among the S&P 500 industry groups, energy producers, off 2.1%, were the biggest decliners. ConocoPhillips (NYSE:COP) fell 1.9% and Chevron Corp. (NYSE:CVX) dropped 2% as crude prices fell for the first time in four days. Schlumberger Ltd. (NYSE:SLB) shares fell 3.3%.
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