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Lower-than-expected GDP
fails to calm rate-hike fears
NEW YORK >> Stocks took a late afternoon tumble yesterday after a lower-than-expected gross domestic product figure failed to ease investor fears about interest rates. The Dow Jones industrials fell 70 points, giving them a two-day drop of more than 200, and all three major indexes fell to their lowest levels in more than a month.
While GDP growth was slower than Wall Street estimates, analysts said it would likely bring only a temporary reprieve from an anticipated Federal Reserve rate hike. Stocks have fallen for more than two weeks on rate concerns, and the prospect of higher rates squelched a rally that began early in yesterday's session.
"I think this will allay some fears, but it might only put off a rate hike for a month or so," said Todd Leone, managing director of equity trading at SG Cowen Securities. "It's just a matter of time before the Fed raises rates. It's merely a question of how much and when."
The Dow dropped 70.33, or 0.7 percent, to 10,272.27. It fell 135.56 on Wednesday.
Broader stock indicators also fell sharply. The Standard & Poor's 500 index was down 8.52, or 0.8 percent, at 1,113.89. The Nasdaq composite index dropped 30.76, or 1.6 percent, to 1,958.78.
The price of the Treasury's 10-year note closed down 932 point, while its yield rose to 4.53 percent from 4.5 percent Wednesday. Two-year Treasury notes fell 1/32 point and yielded 2.26 percent, unchanged from Wednesday.
While the market's interest rate nerves started the selling, the downward momentum was what took prices even lower, analysts said.
"There was no real news here, and volume really didn't pick up," said Bill Groenveld, head trader for vFinance Investments. "I think this was purely a technical move that sent everything lower. There's a definite downtrend here, but there's nothing solid behind it."
That downward trend and increased volatility may remain until the Fed meets to discuss rates on Tuesday. Fed Chairman Alan Greenspan has already hinted that higher rates will be needed to keep the economy from growing too fast.
"We've changed paradigms. It's a shift from worrying about a slow economy. Now we get good economic data and we're cringing over the interest rates," Groenveld said. "We get good earnings, good economic data, but is it too good? Not good enough? We're right in the middle of a very news-driven market, and we're going to be in for some volatile sessions."
The GDP rose 4.2 percent for the first three months of the year, according to the Commerce Department, up slightly from the 4.1 percent gain in the final quarter of 2003. This was lower than the 5 percent rise expected by economists, however.
In another sign of economic growth, the Labor Department reported that new filings for jobless benefits fell last week by 18,000 to 338,000. Analysts said the figures show that layoffs at companies are beginning to drop off somewhat. However, hiring back employees could be a no-win situation.
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