Stocks finished with losses Wednesday despite positive news about the economy and earnings. An anecdotal report and retail sales pointed to improving economic conditions. An opening surge in prices in reaction to better than expected earnings from Intel (INTC) was used by traders as a sell-on-the-news event, says Standard & Poor's MarketScope.
The Dow Jones industrial average shed 9.93 points, or 0.10%, to 9,803.05. The broader Standard & Poor's 500 index slipped 2.73 points, or 0.26%, to 1,046.76. The tech-heavy Nasdaq composite index lost 4.09 points, or 0.21%, to 1,939.10.
"The market's running on borrowed time," says Larry Wachtel, senior vice president of national sales at Prudential Securities. Despite good earnings from Intel, higher retail sales (excluding autos), and the Federal Reserves's Beige Book, "traders think maybe it's time to take profits." Wachtel, who has been expecting some kind of pullback from the market's recent run, says an imminent correction could be in the range of 5% to 10%.
Comments from the Beige Book report showed districts reporting improvement in labor market conditions, noting that consumer spending generally strengthened, which is consistent with the consumption data released this quarter. Business loan demand also improved and there were some indications of a an improving labor market.
In other economic news, September retail sales fell 0.2%. Excluding auto sales, the figure was up 0.3% for the month. Investors are more encouraged by the revision in August sales, raised sharply to an increase of 1.2% from an increase of 0.6% previously, while the figure without car sales was also revised higher to a rise of 1.2% from 0.7%. "The sizeable upward revisions leave the data on very strong footing," says economic research firm MMS International.
On the earnings front, after Tuesday's market close Dow component Intel reported third-quarter profits at the high-end of analyst expectations, at 25 cents per share, vs. 10 cents one year earlier. Revenues hit $7.8 billion for the quarter. Gross margins are expected to increase to around 60% next quarter, up from 58.2% in the third quarter.
Fellow Dow member General Motors (GM) reported a $425 million third-quarter net profit amid strength in its financial arm. Auto sales continued to struggle through a cycle of higher incentives and lower production. The company reported earnings per share of 79 cents, up from a net loss of $804 million, or $1.42 per share.
In other earnings news, financial services concerns Wachovia (WB) and FleetBoston Financial (FBF) reported better-than-expected third-quarter results, amid more customer borrowing and fewer defaults. Wachovia said net income rose 21%, to about $1.1 billion, or 83 cents per share, on revenues of $5.32 billion. FleetBoston said net income rose 17% to $675 million, or 64 cents per share, on revenues of $2.93 billion.
Defense contractor General Dynamics (GD) said quarterly earnings fell amid weak results in its business jet division, but defense revenue was strong and results beat estimates. The company reported net earnings of $262 million, or $1.32 per share, for the third quarter.
After the close Wednesday, IBM (IBM) announced earnings Wednesday that matched estimates of $1.02 per share and revenues of $21.5 billion. The CEO said he saw signs of economic stabilization and expects a pick-up in information technology spending, though he stopped short of calling for a full rebound. He also signaled IBM would be hiring for some 10,000 new positions.
Other companies releasing earnings include Coca-Cola (KO) Thursday morning, along with wireless bellwether Nokia (NOK). United Technologies (UTX) reports results Thursday afternoon.
Thursday's economic line up is also heavy, with updates on consumer price index, initial claims, industrial production, business inventories, and the Philadelphia Fed. While the focus is likely to be on jobless claims and the Philly Fed, MMS "suspects the risk of strong reports has been discounted given Wednesday's data and price action." Underperformance in the economic data could help Treasuries.
Treasuries finished lower in price amid data showing large revisions in the September retail sales report and the Fed's Beige Book. Shorter-dated instruments underperformed. "The data are consistent with the explosive growth evidenced over the second half of the year so far," says MMS. Treasuries enjoyed a little short-covering bounce from session lows thanks to stock declines, but dealers say that this is going against the grain of broadly bearish bond market sentiment after the data.
Also, the Empire State Manufacturing index surged to 33.7 in October -- a record high for the release -- up from 18.35 in September. In an encouraging sign for the labor market, the employment component of the survey turned positive for the first time in a year.
Separately, Treasury Secretary Snow continues to talk up "currency flexibility," but says he supports a strong dollar, though currency values should be set by the market. On the economic front, he says the evidence supports a stronger outlook on jobs.
European stock markets finished higher Wednesday. London's Financial Times-Stock Exchange 100 index closed up 34.70 points, or 0.8%, to 4,368.8 as U.S. corporate earnings and firm economic data helped lift the index. London traders were also encouraged that Britain's unemployment claims fell for the fourth consecutive month.
Germany's DAX index rose 32.45 points, or 0.92%, to 3,570.58 amid news that parliament there may back tax cuts and welfare curbs to bolster the economy. The government revised downward growth forecasts for this year and next.
In Paris, the CAC 40 finished higher by 30.08 points, or 0.90%, to 3,374.98.
Asian stocks finished mixed. Japan's Nikkei 225 index lost 66.48 points, or 0.61%, to finish at 10,899.95, weighed by profit taking after hitting a 16-month high in the previous session. Renewed concerns about the dollar-yen ratio, on the back of President Bush's interview with the Asian press, also hurt Japanese stocks.
In Hong Kong, the Hang Seng index surged 200.16 points, or 1.69%, to 12,056.18.