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Stocks swoon after weak economic reports

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A series of weak economic reports sent the stock market plunging to its lowest level in a month on Wednesday.

Companies like miners, banks and chemical makers, whose fortunes are most closely tied to the prospects for growth, led the market lower.

The troubling data included weak hiring at private companies, a plunge in mortgage applications and sluggish orders to U.S. factories.

The Dow Jones industrial average fell 217 points and finished at 14,960, a drop of 1.4 percent. It was the first close below 15,000 since May 6 and the biggest decline in seven weeks.

Stocks started lower and declined steadily throughout the day. After rising every month this year and climbing to record levels this spring, some investors said a significant pullback was overdue.

"The rally is tired and people are taking some profits." said Brad Reynolds, at investment adviser LJPR.

Investors were also unnerved by a sharp 11.5 percent drop in mortgage applications last week. That was a disappointment because the rebound in housing has been one of the key factors supporting the stock market's record-breaking rally this year.

Housing stocks slumped in response. Beazer Homes fell 60 cents, or 3.1 percent, to $18.78. D.R. Horton dropped 27 cents, or 1.2 percent, to $22.65.

The fall in applications came as mortgage rates rose to the highest point since April 2012. The increase is being driven by higher yields in the bond market. The yield on the 10-year Treasury note climbed as high as 2.2 percent last week, the highest in more than two years.

There was also disappointing news on hiring, another one of the key supports for the market's rally this year.

A measure of employment in the service sector fell to the lowest level since last July. That was a troubling sign because service companies, a broad category that includes entertainment, transportation and health care, have been the main source of job gains.

Earlier Wednesday, payroll provider ADP said U.S. businesses added just 135,000 jobs in May, the second straight month of weak gains. Both increases are much lower than those reported by ADP over the winter, which averaged more than 200,000 a month from November through February.

The stock market's recent bout of volatility began May 22 as traders parsed comments from Federal Reserve Chairman Ben Bernanke and minutes from the last meeting of the Fed's policy committee for clues about when the bank would pull back on its $85 billion in monthly bond purchases.

Since then investors have become increasingly sensitive to economic reports as they try to anticipate when the Fed will act. The bank's bond-buying program, which is intended to keep interest rates low and encourage lending, has supported markets this year. On some days stocks have rallied after poor economic reports led traders to anticipate that the Fed would keep the stimulus going.

On Wednesday, though, the stock market's decline was unambiguous.

The Standard & Poor's 500 index ended down 22.48 points, or 1.4 percent, at 1,608.90. The index is 3.6 percent below its record close of 1,669 reached May 21. It's still up 12.8 percent this year.

The NASDAQ composite dropped 43.78 points, or 1.3 percent, to 3,401.48. The index closed at its lowest level in a month.

Intel fell the most in the Dow, dropping 66 cents, or 2.6 percent, to $24.70. Aluminum maker Alcoa was close behind. It declined 18 cents, or 2.2 percent, to $8.20. All 30 members of the index dropped.

The Dow has fallen for two days in a row. The index has gone without a three-day losing streak since December 26, a record 110 trading days, according to Schaeffer's Investment Research.

As traders sold stocks Wednesday, they moved money into the haven of U.S. government bonds. The yield on the 10-year Treasury note fell to 2.09 percent from 2.15 percent late Tuesday.

U.S. stocks joined a global rout that began in Asia. Japan's benchmark Nikkei 225 index plunged after investors were disappointed at the lack of detail in a keynote speech on the economy from Japanese Prime Minister Shinzo Abe. The Nikkei fell 3.8 percent to 13,014.

European stock markets also fell. Indexes slipped 2.1 percent in Britain, 1.9 percent in France, and 1.2 percent in Germany.

"Everywhere is red," said Mark Schwartz, chief market strategist, at Lightspeed Financial. "It's just a sea of red and we're following in line."

The Nikkei has fallen 17 percent from its peak in mid-May, after soaring at the start of the year thanks to aggressive stimulus measures from the Bank of Japan. Some market watchers drew a parallel with the U.S., where central bank stimulus has also been pushing stock prices higher.

"I'm very concerned about what's going on in Japan," said Doug Cote, chief market strategist at ING. "Some people might be scratching their head and saying that it could happen to us."

Other world indexes have also had significant declines since May 22, when the worries over the Fed easing its stimulus escalated. The FT-SE 100 in Britain is down 6.2 percent, Hong Kong's Hang Seng index is down 5.1 percent and Brazil's Bovespa is down 6.4 percent.

In commodities trading, the price of crude oil rose 43 cents, or 0.5 percent, to $93.74 a barrel. Gold edged up $1.30 to settle at $1,398.50 an ounce. The dollar fell against the euro and the Japanese yen.

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  1. Now if he'd just stay there...

  2. Daniel - what about the many US citizens who do NOT follow what the Bible teaches? The Hindus, Jews, Muslims and others who are all American citizens entitled to all rights as Americans?? This issue has NOTHING to do with "What the Bible says..." Keep all Churches separate from State! Pence's ongoing idiocy continues to make Indiana look like a backwards, homophobic state in the eyes of our nation. Can't we move on to bigger issues - like educating our kids?

  3. 1. IBJ should link to the referenced report. We are in the age of electronic media...not sharing information is lazy. Here is a link http://www.in.gov/gov/files/Blue_Ribbon_Panel_Report_July_9_2014.pdf 2. The article should provide more clarity about the make-up of this panel. The commenters are making this item out to be partisan, it does not appear the panel is partisan. Here is a list of the panel which appears to be balanced with different SME to add different perspectives http://www.in.gov/activecalendar/EventList.aspx?view=EventDetails&eventidn=138116?formation_id=189603 3. It suggests a by-pass, I do not see where this report suggests another "loop". 4. Henry, based on your kneejerk reaction, we would be better off if you moved to another state unless your post was meant as sarcasm in which case I say Well Done. 5. The article and report actually indicates need to improve rail and port infrastructure in direct contradiction to Shayla commentary. Specifically, recommendation is to consider passenger rail projects... 6. People have a voice with their elected officials. These are suggestions and do not represent "crony capitalism", etc. The report needs to be analyzed and the legislature can decide on priorities and spending. Don't like it, then vote in a new legislature but quit artificially creating issues where there are none! People need to sift through the politics and provide constructive criticism to the process rather than making uninformed comments in a public forum based on misinformation. IBJ should work harder to correct the record in these forums when blatant errors or misrepresentations are made.

  4. Joe ... Marriage is defined in the Bible ... it is mentioned in the Bible often. Marriage is not mentioned once in the US or Indiana Constitution ...

  5. Daniel - Educate me please: what does the Bible have to do with laws? If the government wasn't in the business of marriage to begin with, then it wouldn't have to "define" marriage at all. Marriage could be left as a personal, religious, or otherwise unregulated action, with no ties to taxes, legal status, etc. Then people could marry whomever they want, and all this silliness would go away. Remember to vote Libertarian in November.

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