By Jonathan Cheng
U.S. stocks dropped to a fresh three-month low as growing
political concerns in the U.S. and European economic weakness
pushed the technology-heavy Nasdaq Composite into a correction.
The Dow Jones Industrial Average fell 185.23 points, or 1.45%,
to 12570.95, one day after falling to its lowest level since late
July. The Standard & Poor's 500-stock index lost 19.04 points,
or 1.39%, to 1355.49, and the Nasdaq Composite shed 37.08 points,
or 1.29%, to 2846.81.
Stocks started the day in positive territory but quickly gave
those gains up to hand the Dow its fifth decline in the six
sessions since Election Day. The blue-chip measure has lost nearly
5% over that span.
The Nasdaq's decline, meantime, brought its slide off its
mid-September high to 10.6%, putting the index in a correction
according to the generally-accepted definition of a fall of 10% or
more from its recent peak. The Russell 2000 index of
small-capitalization stocks suffered a similar fate, falling 2%, to
11% below its mid-September high.
All 10 sectors of the S&P 500 finished lower, dragged most
heavily by industrial, financial and materials shares. Bank of
America, General Electric and Home Depot led the Dow component
laggards, each shedding 3% or more.
Some market watchers pointed to relatively weak economic data
and fresh economic concerns in Europe to explain the selloff.
Also hurting market sentiment was a tough stance taken by
President Barack Obama in the tense negotiations over U.S. deficit
reduction. Unless politicians can reach a compromise, taxes are set
to rise and government spending to fall in the new year,
potentially pushing the U.S. into recession.
Late Tuesday, the president said he would seek $1.6 trillion in
new tax revenue, far more than Republicans are likely to accept. At
a press conference Wednesday afternoon, he underscored his
position, which some market watchers feared could make for a more
contentious environment with congressional Republicans ahead of the
self-imposed Jan. 1 deadline.
"At every turn, Obama is going after a very aggressive line, and
that has alarmed a lot of people," said Michael Shea, managing
partner at Direct Access Partners. "The president clearly did not
start the negotiations near the middle--he started them way out on
one side, and you know the Republicans will have to come up with an
equally far-out number."
In addition, investors kept an eye on the Middle East, after
Hamas officials in the Gaza Strip said an Israeli airstrike killed
the commander of its military wing. The news helped crude-oil
futures reverse earlier losses to tack on 1.1%, to $86.32 a
barrel.
"Sentiment has clearly turned in the face of some pretty
substantial headwinds, like Europe flaring up, China slowing, U.S.
uncertainty and some weakness in corporate profitability," said
Beata Kirr, senior portfolio manager for Bernstein Global Wealth
Management in Chicago.
Gains in some technology stocks mitigated the losses, after a
strong earnings report from Cisco Systems, a Dow component. The
network-equipment maker climbed 4.8% after its quarterly earnings
and revenue exceeded analysts' expectations, helped by strength in
its services business. Rival Juniper Networks benefited from
Cisco's strong earnings, rising 1.2%.
However, Cisco's strong gain did little to help the
price-weighted Dow, given the stock's low weighting on the
blue-chip measure. The Cisco-related boost was more than offset by
a decline at International Business Machines, which lost 1.5%.
In Europe, the Stoxx Europe 600 dropped 0.9% and London's FTSE
100 gave up 1.1% after downbeat economic data from the euro zone
and the U.K. Both indexes finished at a five-week low.
Euro-zone industrial production for September fell 2.5%, the
largest monthly decline since January 2009. In Portugal, economic
growth fell 0.8% in the third quarter, for its eighth consecutive
quarter of contraction, while Greece's third-quarter GDP fell 7.2%
after contracting 6.3% in the second quarter.
The Bank of England said inflation rose at an annual rate of
2.7% in October, well above the target rate of 2%, prompting the
central bank to freeze its bond-buying stimulus program in
November.
Meantime, Italy auctioned off the maximum targeted amount of
government bonds. Yields came in lower than at previous
auctions.
Asian markets nudged higher, bouncing from a recent string of
losses as the conclusion of China's 18th Party Congress helped to
ease some investor uncertainty. Japan's Nikkei Stock Average inched
up less than 0.1% to snap a seven-session losing streak, while
China's Shanghai Composite rose 0.4%.
In U.S. economic news, retail sales dropped 0.3% in October as a
result of the storm that hit much of the East Coast late that
month. Economists had expected a 0.2% decline. Excluding autos,
retail sales were flat, falling short of the 0.2% gain economists
expected.
Wholesale prices fell 0.2% in October from the previous month,
for the first drop in five months. Economists had expected a 0.2%
increase.
Gold futures inched up 0.3% to $1,729.50 an ounce. The dollar
lost ground against the euro but rallied strongly against the yen.
Treasurys rose, sending the yield on the benchmark 10-year note
down to 1.589%.
In other corporate news, Abercrombie & Fitch soared 34%
after the teen-apparel retailer reported quarterly earnings and
revenue that topped analyst forecasts, boosted by strong
international and direct-to-consumer sales growth. Its full-year
earnings outlook was also well above current projections.
Facebook jumped 13% even as investors positioned for the
expiration of lockups that made about 804 million shares available
for trading on Wednesday--nearly double the amount of the existing
public float. Some market watchers said buyers jumped in when
shares didn't initially fall.
Zynga gained 1.4% after the social games maker said its chief
financial officer, David Wehner, was leaving the company to pursue
a senior finance position at Facebook. The company also affirmed
its 2012 financial outlook.
Advanced Micro Devices dropped 7.7% to lead the S&P 500
decliners after the company said it wasn't actively pursuing a sale
of the company or significant assets.
Mosaic slumped 3.3% after the fertilizer company offered a less
upbeat outlook on sales volume and prices for the current quarter,
citing a decline in international demand.
Staples climbed 2.6% after quarterly earnings at the retailer of
office supplies came in better than expected.
Iamgold declined 19% after the miner's quarterly earnings and
revenue missed forecasts amid a drop in gold sales.
Write to Jonathan Cheng at jonathan.cheng@wsj.com