Stocks finished lower Thursday as the pause in the recent rally continued. A survey on manufacturing conditions from the Philadelphia Federal Reserve showed improvement, but not as much as investors had hoped for.
The Dow Jones industrial average was down 114.3 points, or 1.23%, to 9,179.53. The broader Standard & Poor's 500 index fell 15.4 points, or 1.52%, to 994.69. The tech-heavy Nasdaq composite lost 28.48 points, or 1.7%, to 1,648.66.
In economic news, the Philadelphia Fed manufacturing index for June improved to 4.0, vs. the May reading of -4.8, but the result was below economists' forecasts. New orders rose to -0.5 from -3.8, reflecting some slowdown in the pace of contraction. However, employment eased to -12.9 from -10.9. Prices paid fell to 5.8 from 8.9. These lackluster data are likely to add to revived hopes for a 50 basis-point interest-rate cut by Fed policymakers at their meeting on June 25, notes economic research outfit MMS International.
Initial jobless claims fell 13,000 to 421,000 in the week ending June 14 from an upwardly revised 434,000 (from 430,000) the week prior. The 4-week moving average fell to 432,000 from 435,000, while continued claims fell to 3.721 million from 3.783 million. Overall, the labor data remains fairly soft, says MMS.
On a brighter note, the index of leading economic indicators jumped 1.0% in May after a 0.1% increase in April. Eight of the ten components contributed positively (one was unchanged), led by money supply, consumer expectations, and stock prices. The data were stronger than expected.
In another report, the current account deficit widened to $136.1 billion in the first quarter following big revisions to prior quarters.
There are no major economic releases coming out Friday.
Health-care stocks were particularly weak Thursday, with big losses in biotechs, managed care, and drug issues. Forest Labs (FRX) fell on disappointing trial results for its Alzheimer's drug, while Schering-Plough (SGP) was downgraded by Morgan Stanley.
In corporate news Thursday, Freddie Mac (FRE) may restate its earnings by between $1 billion and $3 billion, according to The Wall Street Journal. The move would boost the mortgage services company's bottom line for the past two or three years, but reduce net income by the same amount during the next several years, the paper reports.
Several stocks moved on earnings news. Micron Technology (MU) reported a fiscal third-quarter loss per share of 36 cents, vs. 4-cent loss a year ago, and higher than analysts' estimate, on a 5% revenue drop. The memory chipmaker noted an approximate 15% decrease in average selling prices in the third quarter. The shares lost nearly 2%.
Lehman Brothers (LEH) said its second-quarter earnings rose 48% from a year ago to $1.67 per share, much higher than analysts' forecast, driven by its strong fixed-income business. Despite the robust report, Lehman shares were down nearly 4%, amid weakness in many other financial services stocks.
Bed Bath & Beyond (BBBY) shares fell about 4% after the home-furnishings retailer posted first-quarter earnings per share of 19 cents, vs. 15 cents a year ago, on 4.4% same-store sales rise and 15% total sales rise. Wachovia downgraded the stock to market perform from outperform.
General Electric (GE) shares fell after Banc of America trimmed 2003 and 2004 earnings estimates, citing sluggishness in GE's plastics business. GE is holding a meeting with analysts on Friday.
Treasuries rose in price as the Washington Post's noted Fed-watcher, John Berry, suggested in an article Thursday that an aggressive 50 basis-point easing by Alan Greenspan & Co. is more likely than the 25 basis-point cut many economists anticipate. The market rallied when the Philadelphia Fed data came in lower than expected. Further erosion in stocks following release of the data provided additional support.
European stock markets were lower Thursday. London's FTSE 100 index was off 75.5 points, or 1.8%, to 4,131.5 on profit taking following a report that U.K. retail sales fell in May for the first time in four months. In Paris, the CAC-40 index fell 49.02 points, or 1.5%, to 3,164.91. In Frankfurt, the DAX index was down 57.04 points, or 1.73%, to 3,247.11 on profit taking.
Asian markets finished with small gains Thursday. Japan's Nikkei 225 index was up 17.54 points, or 0.19%, to 9,110.51. Hong Kong's benchmark Hang Seng index edged up 9.81 points, or 0.1%, to 9,980.11.