WEAK economic figures heightened stock investors’ anxiety over the extended rally, knocking US shares lower for a third day yesterday.
Recent winners in the energy and industrials sectors were hit most, and a key indicator of investor worry rose for a fourth day in what some say is the outset of extended weakness for stocks.
“I think there is a chance that we put the high in for the year,” said Doug Kass, founder and president of Seabreeze Partners Management.
“Investors should err on the side of conservatism and be increasing their cash positions,” he added.
The Dow Jones industrial average lost 83.93 points, or 0.66 per cent, to 12,723.58. The Standard & Poor’s 500 Index fell 9.30 points, or 0.69 per cent, to 1,347.32. The Nasdaq Composite Index dropped 13.39 points, or 0.47 per cent, to 2,828.23.
The S&P energy sector, up almost 12 per cent so far in 2011, dropped 1.6 per cent yesterday, while materials fell 1.7 per cent and industrials lost 1.4 per cent. Dow component Caterpillar lost 2.2 per cent to $110.77 yesterday but is still up 18.3 per cent for the year.
Reports showed activity in the vast US services sector slowed and hiring by private companies was weaker than expected in April. The new orders index in the purchasing managers survey hit its lowest since December 2009.
The releases “call into question the bullish notion of a smooth, self-sustaining recovery”, Kass said.
The data also prompted caution before tomorrow’s jobs report for April, one of the most closely watched US economic indicators.
The CBOE volatility index rose 2.3 per cent to 17.08 for a rise of more than 17 per cent over the past four sessions, shifting its near-term momentum to positive for the first time in more than a month.
In deal news, chip equipment maker Applied Materials offered to buy rival Varian for $63 per share to get its hands on new technology to meet stronger demand for smartphones and solar equipment.
Varian shares surged 51.3 per cent to $61.36 while Applied Materials fell one per cent to $15.09.
ConAgra Foods raised its bid for Ralcorp Holdings to $86 a share in cash from $82.
Shares of ConAgra rose 3.1 per cent to $25.51, while Ralcorp, which owns the Post cereal brand, jumped 4.9 per cent to $87.39.
About 8.6bn shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq, the largest volume since 18 March.