BY ERIC HERMAN
Chicago Sun Times Business Reporter
July 7, 2004

The stock market faltered Tuesday, stumbling on concerns about the economy, rising oil prices and even the presidential election.

The Dow Jones industrial average fell 63.49, or 0.6 percent, to close at 10,219.34. The broader Standard & Poor's 500 index slipped 9.17, or 0.8 percent, closing at 1,116.21. The tech-dominated Nasdaq index lost 43.23 points, or 2.2 percent, to close at 1,963.43. It was the Nasdaq's biggest one-day drop since March 15.

"People have been getting nervous about earnings," said Mark Balkin, a portfolio manager at Chicago's William Blair & Co. "There's a fear out there that growth may be decelerating."

Traders went into the 4th of July holiday weekend with Friday's lower-than-expected job creation figures fresh in their minds. On Tuesday, the Tempe, Ariz.-based Institute of Supply Management reported that its index measuring the economy's service sectors took a surprising plunge -- to 59.9 in June from 65.2 in May. The Chicago-based placement firm Challenger, Gray & Christmas said U.S. employers announced 64,343 job cuts in June, 12 percent fewer than in May, but 7.8 percent more than a year ago. Also, the Challenger report found the number of new workers companies planned to hire in June plunged 31 percent from the preceding month.

Meanwhile, oil prices jumped $1.19 to $39.58 a barrel on the New York Mercantile Exchange, fueling concerns about the economy. The surging oil prices combined with Tuesday's and last Friday's reports to make a blend the market found distasteful.

Among the stocks hit hardest were makers of computer chips. Intel Corp. fell 22 cents to $26.11 after Lehman Bros. cut its profit forecast for the Santa Clara, Calif.-based company. Conexant, a maker of chips for modems and cable-television boxes, said its third-quarter sales and profits would not meet expectations. The news knocked $1.77 off Conexant's shares, which closed at $2.31. The drop represented a 43 percent loss in the shares' value.

The Dow rose 25.3 percent in 2003 as U.S. companies found ways to boost profitability. So far this year, the Dow has shed about 2 percent. Some observers said political uncertainty is contributing to the doldrums. John Kerry's selection of Sen. John Edwards as his running mate on the Democratic ticket did little to calm Wall Street's concerns. A former personal injury lawyer, Edwards appears to be unpopular with a business community grown weary of lawsuits.

"The market doesn't seem to be reacting well to Edwards being Kerry's running mate," said Balkin. "I think there is an increasing concern that maybe Kerry would win the election."

Many analysts and economists are dismissing the negative elements of recent economic reports as temporary setbacks for an economy that is improving.

"Profitability still looks strong enough to support business expansion, and with that, more jobs and capital spending, which could lead the economy out of its June swoon," said John Lonski, chief economist at Moody's Investors Service.

Balkin, for one, predicted "the market will go higher this year." But, he added, "the market will not have the kinds of returns it had last year. Things are getting better out there," he said. "Are they getting better at an explosive pace? No."

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