Stocks Plunge amid Worries about Spending

(CBS/AP)  Last updated 4:10 p.m. Eastern

Stocks plunged Friday, erasing all of the previous day's big gains, as a drop in consumer spending fanned worries that the economic recovery won't be sustainable.

Major stock indexes tumbled more than 2 percent in early afternoon trading, including the Dow Jones industrials, which gave back all of Thursday's 200-point gain. The biggest declines were among banks, energy and materials companies.

As stocks fell, investors moved to safer assets like the dollar and Treasurys.

Investors started shedding stocks after the Labor Department said personal spending fell 0.5 percent in September. Though the decline was in line with forecasts, it was the largest drop in nine months and followed a 1.3 percent jump in August fueled by the government's popular Cash for Clunkers car rebate program.

The decline marked an about-face for the market, which had rallied on Thursday after the government reported a 3.5 percent jump in gross domestic product in the third quarter. The stronger-than-expected growth came after four straight quarters of declines and was the most promising evidence yet that the longest recession since the 1930s has ended.

However many economists worry that much of that growth came from government stimulus measures, and that without a rebound in consumer spending the economic recovery won't be sustainable.

"I think you have a market that is ultimately looking for its direction," said Bob Froehlich, senior managing director at Hartford Financial Services. "We really are at the inflection point. You tend to have an overreaction to both extremes."

Other analysts expressed similar caution.

"The positive GDP report tells us the recession ended this summer and the recovery has begun. It does not tell us that we are recovered," economist Lakshman Achuthan told CBS News correspondent Anthony Mason.

A drop in the mood of consumers added to the day's bad news. The Reuters/University of Michigan consumer sentiment index fell to 70.6 in October from 73.5 in September. The reading was revised slightly higher from a preliminary estimate of 69.4 earlier this month, and was roughly in line with expectations.

The market is paying close attention to indicators of consumer spending, which is still in a slump despite improvements in other parts of the economy such as manufacturing and housing. Spending by consumers makes up a major part of the U.S. economy.

According to preliminary calculations, the Dow closed down fell 249.85, or 2.51 percent, to 9,712.73. The Standard & Poor's 500 index fell 29.92, or 2.81 percent, to 1,036.19, and the Nasdaq composite index dropped 52.44, or 2.5 percent, to 2,045.11.

Five stocks fell for every one that rose on the New York Stock Exchange. Volume came to 1.6 billion shares compared with 1.5 billion Thursday.

Friday marks the end of the fiscal year for many mutual funds, which could be adding to the selling pressure in the market, analysts said. Fund managers looking to minimize taxes for shareholders often sell some of their investments as the fiscal year comes to a close.

The Labor Department also reported Friday that personal income, the fuel for future spending, was flat in September compared with the previous month, in line with expectations. A lack of income growth is due, in part, to ongoing high unemployment rates, also a major worry for the market.

"Until we get to better employment numbers, it's hard to get real income growth and real spending ... and we're just not there yet," said Kurt Karl, chief US economist at Swiss Re. "Today is a reaction to a little bit of excess exuberance yesterday."

Stocks have fallen for most of the past week on worries about the economy. A stronger dollar, which hurts commodities prices, has also weighed on the market.

The dollar rose again Friday, sending commodity prices lower. On the New York Mercantile Exchange, gold prices slipped about $9 to $1,037 an ounce, while oil prices tumbled $2.38 to $77.49 a barrel.

Bond prices rose sharply as stocks fell. The yield on the benchmark 10-year Treasury note fell to 3.41 percent from 3.50 percent late Thursday.

Analysts say trading is likely to remain volatile in the coming week amid a flood of major economic news, including the Institute of Supply Management's readings on the manufacturing and services industries, sales reports from major retailers and the Labor Department's October employment report - arguably the month's most important piece of economic data. The Federal Reserve will also convene for a two-day policy meeting beginning Tuesday.

Without stronger evidence that the labor market is improving and consumers are feeling more comfortable about spending, investors will have trouble extending the market's massive rally into a ninth month. Even with this week's declines, the S&P 500 index is up about 55 percent since hitting a 12-year low in early March.

About six stocks fell for every one that rose on the New York Stock Exchange, where volume came to 560.8 million shares, compared with 650.7 million at the same time a day earlier.

In other trading, the Russell 2000 index of smaller companies fell 16.97, or 2.9 percent, to 563.25.

Overseas, Japan's Nikkei stock average rose 1.5 percent. Britain's FTSE 100 fell 1.8 percent, Germany's DAX index dropped 3.1 percent, and France's CAC-40 declined 2.9 percent.

[askagain]

brianbwb-2009 - Reread my post. It said Walmart and other pharmacies, not just Walmart. Government spends our tax dollars. It is up to government to spend them wisely. Why would you oppose spending less if it can be done? Employing people who are not necessary and spending more for the drugs makes no sense when the money is coming out of the taxpayer's wallet.

[stuart-johns2]

It's strange that Wall Street would worry about spending when it takes hugh stimulus funds and pays its exec's hugh bonus' which essentially add to the federal deficit.

[askagain]

stuart-johns2 - That is a good point. Perhaps it is a matter of self-interest. If our employer tells us that the company is laying off people, most of us hope and pray that it isn't our job that gets cut. It is actually rational for Wall Street to worry about the deficit and their own incomes, too. We all want to pay the lowest amount possible for our purchases. How many of us care is the merchant loses money on the sale?

[brianbwb-2009]

As if this news has anything to do with the real economy, other than to suggest that money is going to places other than Wall Street.

Bought-and-paid-for AAA ratings, cooked books, overpaid incompetent management execs, ponzi schemes, are these now the proper units of measurement for the nation's economic health?

Wall St. has always tracked misery, the more misery for the middle and poor, the more layoffs, the more inflation, the more corruption, the more indifference by the government to the plight of the people whose welfare it was created to protect, the higher the market goes.

It is time to ignore this irrelevant gambling casino from consideration as a factor in determining the nation's economic state of health.

Here is an idea, for the next three years each family should consider cutting Christmas shopping out altogether, it is a stupid way to celebrate a religious holiday anyway. Use that money to pay off credit, and don't take any more credit that is not vital to preserve life.

In fact any business engaging in holiday sales hype should be boycotted for insulting what was supposed to be a religious holiday.

Let us then ignore Wall St. altogether, and not send one extra cent there. Leave the gambling to the suckers.

[askagain]

Here is a tidbit for those who think government does a better job. The State of Virginia announced it is getting rid of its pharmacy for the mentally ill. The pharmacy employs nine people with a payroll of 800,000. It distributes $13,000,000 of medicine per year through various health departments around the state. The state belongs to a consortium which purchases medicines at discounts.

Here is the kicker. Walmart pharmacies and other pharmacies can supply the medicines for less money. So, the state can save $800,000 in payroll and purchase the drugs for less through commercial pharmacies. The only difference is that patients will have to go to pharmacies like the rest of us. This is another example of private enterprise getting the job done for less money.

[Ichabod09]

Maybe that explains the US Public Health Service choice of Surgeon General.

[brianbwb-2009]

So when Wal Mart becomes the only supplier, then jacks the price above the previous prices, you will still be singing this tired old song.

The state saves $800,000 in payroll, but spends it anyway to administer aid programs to the families of those who just lost their jobs, and most likely their homes.

The only difference now is who gets the money, before it was people doing honest work in service, now it goes to corrupt bureaucrats.


So what then do you figure those who studied pharmacology in college, and worked hard and honestly to qualify for those jobs, should do now that you have cut off their honest livelihood?

I know, I know, go find other jobs in a shrinking economy, the neos usual non-answer.

The only reason Wal Mart has lower prices is because of the competition, take that away, and your cost savings will quickly disappear in an orgy of collusion and price-fixing.

See the problem with you neos is that you instinctively stop your calculations right at the point of considering the negative effects to humans. This sociopathic tendency is probably the most salient feature of your agenda, and probably springs from a self hate programmed into you from birth by your so-called religion.

After all how can you love yourselves, when you are all sinners, born that way? Consequently, how can anyone love or respect others when they cannot even love or respect themselves?

[kenhamlett]

As an alternate theory I suspect that institutional investors have backed off to assess their positions to see if they should hold steady, buy into a new sector or discover an new alternative. Nonstop buying or selling is a bad sign since it suggests the trader is not assessing his actions. Let's call it taking a breather to see if they want to play again next week.

[hungry1968-17]

by askagain October 30, 2009 7:04 PM EDT
correction

It is not fiction. There are investors who make money no matter what the economy is like. Investing is not for everyone. If you can't take the heat or can't afford to risk money, you should not be in the stock money. The potential for making money is high and the potential for losing money is high. To state that it is fiction for anyone who claims that he made money while everyone else lost money is not true. There are many ways to make money in the stock market such as buying long, selling short, buying and selling options, and just plain buying and selling as stocks go up and down. Equate it to buying or selling your own home without a Realtor. It is actually pretty easy but most people are afraid to do it themselves and use a Realtor. By the same token, if you don't know what you are doing in the stock market, perhaps you shouldn't be doing it.







So exactly WHAT are we supposed to do for retirement savings?

There aren't any more pensions, and everything now relies on 401k's.

So how are you supposed to have a retirement plan, AND stay out of the stock market at the same time?

[fontek]

This wasn't a drop, it was a blip. We'll know the market has dropped when the glass on the top floors is broken out and the top dog financiers are swan diving to their rightful places on earth.

[bubbadubba]

<<<<Those who catch the waves enjoy the benefits.>>>

Yea, like everyone who put their money and retirement funds into stocks and lost everything including their home.
SUCKERS.
Excuse me, I mean GREEDY SUCKERS but then again greed is the friend of flim flam artists.
The average stock portfolio has lost 50% in the past 5 years. But of course someone will post fiction that they alone are the genius that made lots of money while everyone else lost everything.

[askagain]

It is not fiction. There are investors who make money no matter what the economy is like. Investing is not for everyone. If you can't take the heat or can't afford to risk money, you should not be in the stock money. The potential for making money is high and the potential for losing money is high. To state that anyone who claims that he made money money while everyone else lost money is not true. There are many ways to make money in the stock market such as buying long, selling short, buying and selling options, and just plain buying and selling as stocks go up and down. Equate it to buying or selling your own home without a Realtor. It is actually pretty easy but most people are afraid to do it themselves and use a Realtor. By the same token, if you don't know what you are doing in the stock market, perhaps you shouldn't be doing it.

[askagain]

correction

It is not fiction. There are investors who make money no matter what the economy is like. Investing is not for everyone. If you can't take the heat or can't afford to risk money, you should not be in the stock money. The potential for making money is high and the potential for losing money is high. To state that it is fiction for anyone who claims that he made money while everyone else lost money is not true. There are many ways to make money in the stock market such as buying long, selling short, buying and selling options, and just plain buying and selling as stocks go up and down. Equate it to buying or selling your own home without a Realtor. It is actually pretty easy but most people are afraid to do it themselves and use a Realtor. By the same token, if you don't know what you are doing in the stock market, perhaps you shouldn't be doing it.

[bubbadubba]

Lie headline, nothing but propaganda.
ANYONE who has been in the stock market (including me, yes I was a sucker and the wealthy who control the market stole my money) knows that Friday is a day for selling and so is the end of the month.
Now on Monday stocks will go up and the cycle will repeat itself like it always does and the same wealthy people will continue to make tons of money and not pay their fair share of taxes like the rest of us.
These lies are intentional. Idiots will panic sell because of stories like this and the same people who sold for a profit will buy the stock cheaper and make a lot of money.
Anyone who does not think the stock market is manipulated by a group of wealthy people must be in a coma.

[missme4]

RIGHTO!

[SHEETPAN]

America needs to manufacture. Look at the labels on almost everything you purchase. Clothes,shoes,Household items in general. Can you find anything made in the U.S.A. anymore? We need to make stuff. But the people in charge make it virtually impossible for anyone interested in starting up a factory of any sort. Rules, regulations, guidelines, codes, labor laws, OSHA, EPA, NIMBY, Lawyers and so on. If America is serious about economic recovery than what is required is to create wealth. And that means manufacturing. Wall street has it's function but it does not create tangible products and often simply creates phony wealth. Not only does, Made in America not mean what it used to, it's becoming an endangered species.

[billpl-2009]

people don't want those kind of jobs

"made in the USA" means importing more labor

I'd rather by imported stuff and let them stay where they came from

[missme4]

@ billpl-2009

You're not too bright are you? No really, are you? Alot of manufacturing jobs pay well. Mine for example. Manufacturing Process Engineer. The only way america will stay on top is if it has a quality product to sell. If you think building a road in america or building a windmill in america makes us money you are mistaken. It just shuffles money around until it ends up in the wrong hands. In order to succeed, america has to sell outside of america. Manufacturing is the key. People who program and setup manufacturing equipment can make a very good income. And, there are ALOT of people wanting to get those jobs. I'll show you the stack of resumes on my desk. So, when you buy foreign goods at walmart, or foreign cars you are destroying your future and mine. Right now China wants our money. in another 20 years it will want our land. If idiots follow in the footsteps of your remarks, america will not be strong enough to fight back. You think it's bad now? Just wait till you have 20 million Chinese men running around your house with machine guns. It's coming, but only if you let it.
So, if I don't make money at my job, guess what. I can't buy goods and services from you at your job. See the big picture I drew? I used crayons with real bright colors for you.