Dow plunges on jobs stimulus worries, Europe fears
US markets were down in early trading, with the Dow trading as low as 200 points as fresh worries about Europe surfaced, and on speculation that Congress won’t pass President Obama’s proposed stimulus plan.
As at 10.25 am EDT, the Dow Jones Industrial average was down 161.96 points or 1.43% at 11,133.85, the S&P 500 fell 1.13% or 16.42 points at 1,172.49 and the tech-focused NASDAQ dropped 16.42 points or 0.65% at 2,512.72.
In a rare joint session of Congress last night, President Obama called for a much larger than originally hinted $447 billion plan to stimulate jobs growth, including $253 billion in tax cuts and $194 billion in new spending.
President Obama asked legislators to put their cross-party bickerings aside, and pass the stimulus plan in an effort to cut the staggering 9% unemployment rate. Under the new package, the 2% social security tax cut introduced late last year for one year would be extended for one more year and increased by one percentage point.
The President said that the plan would be "deficit neutral" in the longer term, but would not release specifics on how to pay for the stimulus package until September 19.
President Obama is scheduled to speak again about his jobs plan in Richmond, Virginia later today.
Federal Reserve chairman Ben Bernanke also gave a speech before markets closed last night, which caused all three main US indexes to shed around 1%. Bernanke reiterated that the Fed would be prepared to use certain "tools" at its disposal to help boost growth, but investors were disappointed that he didn't signal any specific measures yet again.
In other economic news, inventories at US wholesalers rose more in July than a month earlier, boosted by automobiles and computer equipment, as sales stagnated. An 0.8% increase in inventories released by the Commerce Department followed a 0.6% rise in June. Expectations were for inventories to rise 0.7% in July.
In corporate news, shares of Canadian yoga athletic apparel retailer Lululemon (NASDAQ:LULU)(TSE:LLL) dropped 6.8% as the company, which recently underwent a stock split, beat earnings expectations for the second quarter, posting net income of $38.4 million or 26 cents per share. Comparable store sales increased 20% on a constant dollar basis.
However, its full year earnings outlook came down to $1.10 to $1.14 per share - a result of the stock split - from its previous forecast of $2.10 to $2.16 a share.
VeriSign (NASDAQ:VRSN) plunged 12% after it announced late Thursday that executive vice president and CFO Brian Robins has resigned to pursue new opportunities.
Kroger (NYSE:KR) fell 6% after second-quarter profits came in lower than Street expectations as the supermarket chain said margins slipped on higher merchandise costs.
Second-quarter profit rose to $280.8 million, or 46 cents per share, from $261.6 million, or 41 cents per share, last year. Excluding items, Kroger earned 41 cents per share. Sales increased to $20.9 billion from $18.8 billion a year ago. Analysts were expecting earnings of 43 cents a share on revenue of $20.5 billion.
McDonalds (NYSE:MCD) was down 4% after it said comparable sales increased 3.5% in the month of August, below estimates, as Japan sales suffered.
In NYMEX trading, crude futures were down 2.37% at $86.94 a barrel while gold was down 0.06% at $1,856.40 an ounce.
European equity markets were down around 3% in the UK, France and Germany following the the resignation of key ECB board member Juergen Stark in a dispute over sovereign-debt bond purchases, which hurt banking stocks on the continent.