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By Ellis Mnyandu
NEW YORK, July 7 (Reuters) - U.S. stocks tumbled on
Friday, sending the Dow to its biggest drop in a month, as
investors worried that 3M Co.'s profit warning could
be a sign that more companies will forecast that earnings will
fall short of Wall Street's estimates.
A government report showing weaker job growth and rising
wages stirred concerns about slower economic growth and a
pickup in inflation, adding to the market's negative tone.
The Dow's fall of 1.2 percent was its biggest one-day
percentage slide in a month.
Traders said 3M's warning suggested that two years of
interest-rate increases by the Federal Reserve could now be
taking their toll on profitability as economic growth slows.
Corporate America has enjoyed four years of double-digit
profit growth, helped in part by a strong economy.
"The expectation that the Fed was going to raise interest
rates to fight inflation, but not actually affect the earnings
of companies, I think that may have been very naive on the
part of investors," said Larry Peruzzi, senior equity trader
at The Boston Co. Asset Management, a Mellon subsidiary.
He said that during late afternoon trading there were
concerns that "come next week, we're going to see more
companies, more large industrial bellwethers, warn on the
downside."
The Dow Jones industrial average <.DJI> slid 134.63
points, or 1.20 percent, to end at 11,090.67. The Standard &
Poor's 500 Index <.SPX> fell 8.60 points, or 0.67 percent, to
finish at 1,265.48. The Nasdaq Composite Index <.IXIC> dropped
25.03 points, or 1.16 percent, to close at 2,130.06.
For the week, the Dow average fell 0.53 percent, while the
S&P 500 shed 0.37 percent, and the Nasdaq lost 1.94 percent.
Diversified manufacturer 3M, an economic bellwether that
makes well-known products like Scotch tape and Post-It notes,
forecast second-quarter and full-year results will be at or
below Wall Street's estimates, tempering optimism about the
U.S. corporate earnings outlook. For details, see
[ID:nN07193019].
3M shares registered their biggest one-day percentage
slide in more than eight years, fell 9 percent, or $7.29, to
$74.10 on the New York Stock Exchange. The biggest drag on the
Dow was 3M, which accounted for almost 60 points of the
blue-chip average's slide.
"The fact that the economy is slowing is becoming more
palpable to investors," said Michael Pento, senior market
strategist at Delta Global Advisors, Inc. in Sarasota,
Florida.
He added that this trend could be could be traced to "two
months of sub-par growth in job creation and from the warning
that 3M gave today. That is not good for corporate earnings."
Since June 30, 2004, the Federal Reserve has raised
short-term U.S. interest rates 17 consecutive times in an
effort to curb inflation.
The drop in 3M overshadowed a nearly 1 percent gain in the
shares of General Motors Corp. . The U.S. automaker's
board on Friday approved exploratory talks on a three-way
alliance with Nissan Motor Co. Ltd. <7201.T> and Renault SA
. [ID:nN07214534] GM shares were the Dow's biggest
advancer, up 28 cents at $29.48.
Weighing on the Nasdaq, shares of Starbucks fell 4.9
percent, or $1.84, to $36.04, a day after it said sales at
coffee shops open at least 13 months rose 6 percent in June,
at the low end of Wall Street's estimates. [ID:nN06430970]
Adding to the negative tone, shares of Advanced Micro
Devices Inc. fell 1.1 percent, or 27 cents, to $23.56
on the NYSE after the chipmaker slashed its second-quarter
sales forecast.[ID:nN06455454]
But shares of the world's biggest aluminum producer, Alcoa
Inc. rose 0.4 percent, or 13 cents, to $33.55 on the
NYSE. Alcoa, a Dow component, will kick off the quarterly
earnings reporting season after the bell on Monday,
Before Friday's regular session began, the U.S. Labor
Department said 121,000 nonfarm payroll jobs were created in
June -- far short of economists' expectations of 185,000 jobs,
although the reading was above an upwardly revised figure of
92,000 in May. [ID:nN07169929]. But the report also showed a
rise in average hourly earnings, which set off alarms about
rising wage inflation.
Some analysts said the report suggested the Federal
Reserve would have room to stop raising interest rates, but
others said the report raised worries about the state of the
economy and the outlook for corporate profits.
Volume was light, with only about 1.43 billion shares
changing hands on the NYSE, below last year's daily average of
1.61 billion. On Nasdaq, though, about 1.79 billion shares
traded, almost even with last year's daily average of 1.80
billion.
Decliners sharply outnumbered advancers by a ratio of 5 to
3 on the NYSE, while on Nasdaq, about five stocks fell for
every two that rose.