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July 27, 2011 at 10:50 AM
U.S. markets fell sharply on Wednesday as two key indicators projected a dim view of the near-term future of the U.S. economy.
The Commerce Department’s durable goods report for June showed a monthly decline of 2.1%, more than erasing May’s 1.9% gain and joined with April’s 2.5% decline—marking a slowdown trend upsetting to Wall Street traders who look to durable sales as a guide to future economic activity.
The Nasdaq closed down 2.65%. The rout on the tech-heavy index surely reflects the fact its constituent stocks sell durable goods, particularly capital equipment. For example, in afternoon trading, Tellabs (TLAB), which makes networking equipment, was down nearly 8%; Cisco (CSCO), a larger networking equipment company, was down 3%.
The S&P 500 fell 2.03% and the Dow Jones Industrial Index was off 1.59%.
Nearly half the volume of new orders of durables includes economically sensitive capital goods, which have further uses in manufacturing and production. New orders for nondefense capital goods fell even harder in June, declining 4.1%; (the less important defense-related capital goods new orders suffered a similar decline–3.9% in June).
