U.S. stocks fell yesterday after the University of Michigan reported a bigger-than-expected drop in consumer confidence and Federal Reserve Chairman Alan Greenspan said investors are getting too complacent about risk.
The Standard & Poor's 500-stock index and the Dow Jones industrial average recorded their biggest weekly losses in two months. Shares of home builders and banks declined on prospects for higher interest rates.
"There's a background of negativity" in the market, said Jay Suskind, executive vice president at Ryan Beck & Co. in Florham Park, N.J. "It starts from oil prices and the economy and inflation, and what is the Fed going to do."
In trading yesterday, the S&P 500 retreated 7.29, or 0.6 percent, to 1205.10. The Dow lost 53.34, or 0.5 percent, to close at 10,397.29. The Nasdaq composite index was down 13.60, or 0.6 percent, and closed at 2120.77.
The S&P 500 has lost 3.2 percent since Aug. 3 on concern that rising energy costs will curb consumer spending and erode corporate profits. Oil for October delivery dropped 2 percent, to $66.13 a barrel in New York. It reached an intraday record, not adjusted for inflation, of $68 yesterday.
For the week, the S&P 500 fell 1.2 percent and the Dow average declined 1.5 percent. Both had their steepest weekly losses since June 24. The Nasdaq slipped 0.7 percent for its fourth consecutive weekly retreat, the longest such streak since April.
The University of Michigan's final index of consumer sentiment dropped in August to 89.1. Economists had expected a reading of 92.5 in a Bloomberg News survey. The preliminary reading was 92.7.
"The confidence number this morning was abysmal, and that's what shocked the market," said Tom Schrader, head of listed trading at Legg Mason Wood Walker in Baltimore. "The higher oil prices are definitely starting to have an impact on consumer spending."
Yesterday's consumer sentiment figure followed a report earlier this week that showed orders for durable goods had fallen 4.9 percent in July. Together, the data spurred concern ahead of reports that will be released next week showing economic output, personal incomes and employment.
Greenspan's comments came at a Fed symposium in Jackson Hole, Wyo. The increase in values of assets such as homes and stocks, fueled by low interest rates that encourage risk-taking, "can readily disappear," he said.
Bond yields rose on speculation the Fed will boost the bank's benchmark interest rate more than expected. Yields on the 10-year Treasury note added 3 basis points, or 0.03 percentage points, to about 4.18 percent in New York.
"Alan Greenspan is desperate to get the longer-term yields up, and he's pretty much doing anything he can think of to make that happen," said Susan Fulton, who manages $250 million at WealthTrust-FBB in Bethesda. "The banks and mortgage lenders are just making more and more risky borrowing opportunities available."
An S&P index of homebuilding stocks dropped 1.4 percent, bringing its slide in August to 14 percent.
D.R. Horton, the largest U.S. home builder, fell 81 cents, to $33.40. Smaller rival KB Home fell 96 cents, to $70.09.
J.P. Morgan Chase fell 47 cents, to $33.65. A gauge of banks fell 1.2 percent and was the largest contributor to the S&P 500's decline. Wells Fargo fell 78 cents, to $58.79.
Pixar fell $1.01, to $41.99, after saying it is being investigated by the Securities and Exchange Commission.
Novell increased 21 cents, or 3.4 percent, to $6.38, for the best performance in the S&P 500, after profit beat estimates.
Petco Animal Supplies fell $3.56, to $21.99, after cutting its full-year earnings forecast.
New York Stock Exchange composite index fell 54.72, to 7379.86.
American Stock Exchange index fell 10.36, to 1617.36.
Russell 2000 index of smaller-company stocks fell 9.06, to 648.64.
NYSE: 1.54 billion shares, down from 1.58 billion on Thursday. Decliners outnumbered advancers 7 to 3.
Nasdaq: 1.28 billion shares, down from 1.33 billion. Decliners outnumbered advancers 2 to 1.
Crude oil for October delivery: $66.13, down $1.36.
Gold for current delivery: $437.40 a troy ounce, down from $438.40 on Thursday.