NEW YORK – Interest rate fears drove a major selloff on Wall Street on Monday, with the Dow Jones industrial average closing below 10,000 for the first time since Dec. 10 and sending all three major indexes to their lows for the year.
The dread that has sent stocks tumbling over the past four weeks intensified after Friday’s employment report from the Labor Department – the U.S. gained 288,000 new jobs in April. Investors feared the news would prompt the Federal Reserve to raise rates as early as next month, and selling spread around the globe Monday, sending overseas markets tumbling as well.
“Of course, psychologically, Dow 10,000 has some short-term effects on the market,” said Stuart Freeman, chief equity strategist for A.G. Edwards &Sons. “Long-term, the markets still look at corporate fundamentals, earnings, that sort of thing. But we do have some inflation and interest rate fears in play which could keep things lower, at least for now.”
According to preliminary calculations, the Dow fell 127.32, or 1.3 percent, to 9,990.02 in heavy volume on the New York Stock Exchange. At one point, the Dow had been down 183.11. It was the lowest close for the Dow since Dec. 10, the last time the Dow closed below 10,000.
Wall Street has been gripped by a spasm of selling for four weeks as economic indicators grew more positive and investors worried that corporate profits would be eroded by an ensuing series of interest rate hikes. Along the way, the market completely ignored a stellar batch of first-quarter earnings reports.
“Investors do have some incentive to lock in gains,” Freeman said. “Stocks have done very, very well over the past 12 months, and this could be as good as it gets for the next few months. And you’re seeing a lot of rotation into traditionally defensive sectors such as health care and consumer staples.”
Indeed, investors sent health care giant Johnson &Johnson up 15 cents at $55.45, while retailer Wal-Mart Stores Inc. rose $1.32 to $55.22.
A number of industry bellwethers, including Dell Inc., Wal-Mart and Cisco Systems Inc., were expected to release earnings later this week. The latest Consumer Price Index report, a key measure of inflation, is also due on Friday.
“If we get positive news from Cisco and the CPI, that could set the stage for improvement over the next few weeks,” said Michael Sheldon, chief market strategist at Spencer Clarke LLC. “It’s not all doom and gloom, but investors need to pay more attention to risk preservation here until the investing environment turns a little more positive.”
There may be some relief in sight at the gas pumps, as Saudi Arabia’s oil minister Monday called on other oil producing nations to increase production. The call had a negative effect on petroleum stocks, with ChevronTexaco Corp. shedding $2.48 to $89.17 and Exxon Mobil Corp. losing $1.20 to $42.05.
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