U.S. stocks tumbled Friday, sending the Dow Jones industrial average to its biggest drop in a month, as investors worried that 3M'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 added to the market's negative tone. The Dow's fall of 1.2% 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 Boston Co. Asset Management.
He said there were concerns that "come next week, we're going to see more companies, more large industrial bellwethers, warn on the downside."
The Dow slid 134.63 points to 11,090.67. The Standard & Poor's 500 index fell 8.60 points, or 0.7%, to 1,265.48, while the Nasdaq composite index dropped 25.03 points, or 1.2%, to 2,130.06.
Volume was light, with only about 1.43 billion shares changing hands on the New York Stock Exchange. Decliners sharply outnumbered advancers by 5 to 3 on the NYSE.
For the week, the Dow average fell 0.5%, the S&P 500 shed 0.4%, and Nasdaq lost 1.9%.
Manufacturer 3M forecast that second-quarter results would miss Wall Street's estimates, tempering optimism about the corporate earnings outlook.
3M shares registered their biggest one-day percentage slide in more than eight years, plunging 9%, or $7.29, to $74.10. It was the biggest drag on the Dow, accounting 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, Fla.
He added that this trend could be traced to "two months of subpar 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 U.S. interest rates 17 consecutive times in an effort to curb inflation.
The drop in 3M overshadowed a nearly 1% gain in the shares of General Motors. The automaker's board Friday approved exploratory talks on a three-way alliance with Nissan Motor and Renault. GM shares were the Dow's biggest advancer, up 28 cents at $29.48.
Weighing on Nasdaq, shares of Starbucks fell 4.9%, or $1.84, to $36.04, a day after it said sales at coffee shops open at least 13 months rose 6% in June, at the low end of Wall Street's estimates.
Adding to the negative tone, shares of Advanced Micro Devices fell 1.1%, or 27 cents, to $23.56 after the chip maker slashed its second-quarter sales forecast.
But shares of the world's biggest aluminum producer, Alcoa, rose 13 cents to $33.55. Alcoa, a Dow component, will kick off the quarterly earnings reporting season after the closing bell Monday.
Before Friday's regular session began, the Labor Department said 121,000 nonfarm payroll jobs were created in June -- far short of economists' expectations of 175,000 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, and that sentiment helped yields on U.S. Treasuries to slide for a second day. Bond yields fall as their prices rise.
"The bear market's over" in bonds, said Bill Gross, chief investment officer at Newport Beach-based Pacific Investment Management Co., who manages the world's biggest bond fund. "We're becoming bullish on the market, bearish on the economy."
The yield on the 10-year U.S. Treasury note fell to 5.13% from 5.18% on Thursday.
Also Friday, a barrel of light crude oil set an intraday record of $75.78 before settling at $74.09, down $1.05, in New York trading.
Bloomberg News was used in compiling this report.