Dow dips 200 points as economic news disappoints

Friday, May 9, 2014, Vol. 38, No. 19

NEW YORK (AP) — U.S. stocks fell sharply midday Thursday, with the Dow Jones industrial average slumping more than 200 points, as disappointing economic data and Wal-Mart earnings sent investors scrambling for safer assets.

KEEPING SCORE: The Dow Jones industrial average was down 179 points, or 1.1 percent, to 16,436 as of 12:10 p.m. Eastern time. The Dow had been down as much as 204 points at midday. The Standard & Poor's 500 index fell 23 points, or 1.2 percent, to 1,865 and the Nasdaq composite slid 55 points, or 1.3 percent, to 4,045.

AVOIDING RISK: The Russell 2000 index, which is made up primarily of smaller, more risky companies, fell more than 1.5 percent, and is trading at its low for the year.

FACTORY SLOWDOWN: U.S. industrial production dropped in April, the Federal Reserve said Thursday, possibly due to more bad weather. Production fell by 0.6 percent versus the 0.1 percent gain that economists expected. Factory output, which excludes mines and utilities, fell by 0.4 percent. Another manufacturing-related report, the Philadelphia Fed Index, also came in short of expectations.

THE QUOTE: "People are just a little bit nervous about the entire global economic environment at the moment," said Ryan Larson, head of U.S. equities at the Royal Bank of Canada.

RETAIL ROUT: Wal-Mart Stores fell $1.64, or 2 percent, to $77.10. The company reported a 5 percent profit decline in its most recent quarter and warned that things don't look much better this quarter. The company, like many other retailers, blamed harsh winter weather. Department store operator Kohl's also fell sharply after reporting a 15 percent drop in first-quarter earnings. Its comparable-store sales fell 3.4 percent. Analysts were looking for a slight uptick.

BUYING SAFETY: With stocks sliding, investors bought bonds. The yield on the U.S. 10-year note fell below 2.5 percent for the first time in 2014. The bond rally has surprised many investors this year, since many thought the improving economy and the end of the Federal Reserve's bond-buying program would cause yields to move higher. There was talk among traders that foreign buyers have raced into the U.S. Treasury market looking for safety and bigger yields, which might be distorting the move in bonds. Despite their fall, yields of U.S. government bond are higher than those of some developed economies.

"This flight to quality is overwhelming bond investors," said Tom di Galoma, a fixed-income trader at ED&F Man Capital.

PRICE POP: U.S. consumer prices rose at their fastest pace in nearly a year in April, the Labor Department said Thursday. The consumer price index, an often-quoted barometer of inflation in the U.S., rose by 0.3 percent last month due to higher food and gas prices. Inflation is on pace to rise 2 percent this year. While not alarming, it is noticeably higher than a year ago.

JOBS: One positive economic report was jobless claims. The Labor Department said the number of people who filed for unemployment benefits fell to its lowest level in seven years last week. Weekly unemployment benefit applications fell by 24,000 to 297,000. Economists had predicted a much smaller drop in jobless claims applications.

CISCO SURGE: Telecommunications equipment maker Cisco jumped $1.67, or 7 percent, to $24.44. Cisco reported an adjusted profit of 51 cents a share, three cents better than expectations.