US stocks tumbled on Friday, sending the Dow to its biggest drop in a month, as investors worried that 3M Co's profit warning could be a sign that more companies will forecast that earnings will fall short of Wall Street's estimates. A government report showing weaker job growth and rising wages stirred concerns about slower economic growth and a pickup in inflation, adding to the market's negative tone.
The Dow's fall of 1.2 percent was its biggest one-day percentage slide in a month. Traders said 3M's warning suggested that two years of interest-rate increases by the Federal Reserve could now be taking their toll on profitability as economic growth slows. Corporate America has enjoyed four years of double-digit profit growth, helped in part by a strong economy.
"The expectation that the Fed was going to raise interest rates to fight inflation, but not actually affect the earnings of companies, I think that may have been very naive on the part of investors," said Larry Peruzzi, senior equity trader at The Boston Co Asset Management, a Mellon subsidiary.
He said that during late afternoon trading there were concerns that "come next week, we're going to see more companies, more large industrial bellwethers, warn on the downside."
The Dow Jones industrial average slid 134.63 points, or 1.20 percent, to end at 11,090.67. The Standard & Poor's 500 Index fell 8.60 points, or 0.67 percent, to finish at 1,265.48. The Nasdaq Composite Index dropped 25.03 points, or 1.16 percent, to close at 2,130.06. For the week, the Dow average fell 0.53 percent, while the S&P 500 shed 0.37 percent, and the Nasdaq lost 1.94 percent.
Diversified manufacturer 3M, an economic bellwether that makes well-known products like Scotch tape and Post-It notes, forecast second-quarter and full-year results will be at or below Wall Street's estimates, tempering optimism about the US corporate earnings outlook.
3M shares registered their biggest one-day percentage slide in more than eight years, fell 9 percent, or $7.29, to $74.10 on the New York Stock Exchange. The biggest drag on the Dow was 3M, which accounted for almost 60 points of the blue chip average's slide.
"The fact that the economy is slowing is becoming more palpable to investors," said Michael Pento, senior market strategist at Delta Global Advisors, Inc in Sarasota, Florida.
He added that this trend could be traced to "two months of sub-par growth in job creation and from the warning that 3M gave today. That is not good for corporate earnings." Since June 30, 2004, the Federal Reserve has raised short-term US interest rates 17 consecutive times in an effort to curb inflation.
The drop in 3M overshadowed a nearly 1 percent gain in the shares of General Motors Corp. The US automaker's board on Friday approved exploratory talks on a three-way alliance with Nissan Motor Co Ltd and Renault SA. GM shares were the Dow's biggest advancer, up 28 cents at $29.48.
Weighing on the Nasdaq, shares of Starbucks fell 4.9 percent, or $1.84, to $36.04, a day after it said sales at coffee shops open at least 13 months rose 6 percent in June, at the low end of Wall Street's estimates. Adding to the negative tone, shares of Advanced Micro Devices Inc fell 1.1 percent, or 27 cents, to $23.56 on the NYSE after the chipmaker slashed its second-quarter sales forecast. But shares of the world's biggest aluminium producer, Alcoa Inc rose 0.4 percent, or 13 cents, to $33.55 on the NYSE. Alcoa, a Dow component, will kick off the quarterly earnings reporting season after the bell on Monday,
Before Friday's regular session began, the US Labour Department said 121,000 nonfarm payroll jobs were created in June - far short of economists' expectations of 185,000 jobs, although the reading was above an upwardly revised figure of 92,000 in May. But the report also showed a rise in average hourly earnings, which set off alarms about rising wage inflation.
Some analysts said the report suggested the Federal Reserve would have room to stop raising interest rates, but others said the report raised worries about the state of the economy and the outlook for corporate profits.
Volume was light, with only about 1.43 billion shares changing hands on the NYSE, below last year's daily average of 1.61 billion. On Nasdaq, though, about 1.79 billion shares traded, almost even with last year's daily average of 1.80 billion. Decliners sharply outnumbered advancers by a ratio of 5 to 3 on the NYSE, while on Nasdaq, about five stocks fell for every two that rose.