Accessibility links

Breaking News

US Stocks Drop on Falling Consumer Confidence - 2001-08-28

Falling consumer confidence weighed on U.S. stocks Tuesday, as investors worried about the weakening U.S. economy. The major stock averages on Wall Street all closed lower.

The Dow Jones Industrial Average dropped 160 points, 1.5 percent, to 10,222. The broader Standard and Poor's 500 index shed 17 points, also 1.5 percent, while the tech-weighted NASDAQ composite fell 2.5 percent.

Economists had expected a slight rise in consumer confidence, bolstered in part by tax rebate checks for Americans. But the latest survey showed a decline, prompted mostly by concern over job lay-offs.

Wall Street agonized over the numbers. Any suggestion that spending might slow raises the specter of a longer-than-expected economic recovery, or even, some fear, a recession.

U.S. retailers are especially nervous. On Tuesday, sporting goods chain Sports Authority reported a more than four percent decline in sales due to sluggish demand.

Wall Street analysts believe a slow recovery blurs the picture for corporate America even more and is likely to keep the stock market in check. Market analyst Peter Henderson says profits for most companies simply are not what they used to be. "Long-term, speaking maybe 12 to 18 months down the road, I think the economy will really change toward the positive," he says. "But in the near-term, no. I think last year, the third-quarter numbers [corporate earnings] were not all that bad. And the comparisons to this year's third quarter are not going to be very good. And I don't see anything in the near-term that's really going to spark this market to perform any better than it has in the past few months, unfortunately."

Some experts would like to see expectations come down to what they consider more sensible targets for profit growth. Analyst Ned Riley says investors were living in a speculative bubble over the past few years. "That's one of the problems. And everybody's disappointed," he says. "The analysts are disappointed. CEO's are disappointed. The problem is this is a real world. And a real world does not grow at 30 to 40 percent earnings per share "ad infinitum [won't go on for ever]."

In other news, Swedish telecom equipment maker Ericsson reportedly has agreed with Sony of Japan to merge their handset units. In the highly competitive cell phone market, they hope to challenge the leadership of Finnish company Nokia and U.S. based Motorola.

The joint venture still needs approval by the boards of both companies and by regulatory authorities. Sony and Ericsson say the new project is on track to start October 1.