Positive comments from Federal Reserve Chairman Alan Greenspan could not lift markets Thursday. In his appearance before the Senate Banking Committee, the Fed chief suggested the recession is over. But many investors pocketed recent gains on fear that the faster-than-expected recovery may result in a quick return to interest rate hikes.
Buying in response to good economic data has bolstered the market lately, but the advances have often been met with profit-taking. After Wednesday's frothy gains, investors Thursday ignored positive data on productivity and jobless claims -- as well as Greenspan's more optimistic tone -- and sent the market lower.
The Dow Jones industrial average ended off 48.92 points, or 0.46%, to 10,525.37. The tech-heavy Nasdaq composite index snapped its four-session winning streak, shedding 8.77 points, or 0.46%, to 1,881.63. The broader Standard & Poor's 500 index finished lower by 5.23 points, or 0.45%, to 1,157.53.
Early in his testimony, Greenspan said that the "U.S. expansion is well under way." This comment comes one week after a heavily hedged economic outlook from the central bank head on Feb. 27, when he delivered the first part of his semi-annual monetary policy testimony.
However, Greenspan noted Thursday that an "array of influences" are likely to moderate the speed of recovery. The mildness of the slowdown could result in a tepid and sluggish rebound. Perhaps more alarming to investors, the more sanguine tone suggests that pressure is building at the Fed to go "neutral" on its policy bias soon as the Mar. 19 FOMC meeting, S&P MMS says.
Investors Friday will have a lot to digest. The most important economic report of the week is set for Friday, when February payrolls data are to be released. MMS economists are expecting the nation's unemployment rate to tick up to 5.8% from 5.6% in January. A surprise on the upside might curb the market's latest slide.
Also on Friday, investors will mull the latest update from Dow member Intel (INTC ). After the market close Thursday narrowed the range of revenue guidance for its first quarter that it provided in January to between $6.6 billion to $6.9 billion, compared with a previous forecast of $6.4 billion to $7.0 billion.
Sun Microsystems (SUNW ) will also report its mid-quarter update on earnings Thursday after the close. Analysts at SoundView say that their talks with North American resellers indicate business is comparable to or worse than January levels. The firm expects Sun to lower guidance.
Biotech concern Genzyme Corp. (GENZ ) and chipmaker National Semiconductor (NSM ) will issue their latest earnings reports Friday.
U.S. Treasuries fell in price on Greenspan's more optimistic testimony and after the latest productivity update. Talk of a positive payroll report on Friday and a steady stream of new corporate debt issues also weighed on the market, according to S&P MMS. Several regional Fed officials are also due to make comments on the economy Thursday.
Economic data have been strong lately. Fourth quarter productivity was revised sharply higher to 5.2% from 3.5% previously. The productivity gain was the highest since the 6.7% gain in second quarter 2000 and clearly shows that the aggressive labor cuts allowed the economy to come back into balance efficiently, says MMS. MMS was expecting a 4.8% increase.
Besides the latest productivity update, initial jobless claims for the week ended Mar. 2 fell 5,000 to the 376,000 level. The decline in claims leaves the series below the 400,000 level for the ninth straight week, says MMS. The stabilization in claims suggests that conditions in the labor market have found a bottom.
European markets finished higher. A number of buyouts in the tobacco and media sectors, along with recent gains in the U.S., bolstered the markets. In London, the FTSE 100 index finished up 36.60 points, or 0.70%, at 5,282.10 amid expected strength in the U.S. market. In Germany, the DAX index edged up 4.17 points, or 0.08%, to 5,289.43. In France, the CAC 40 index gained 28.36 points, or 0.62%, to 4,616.50.
Asian stocks ended higher. In Japan, the Nikkei 225 index soared 289.81 points, or 2.55%, to 11,648.34. Better-than-expected results of Japan's leading indicator index and growing hopes of a U.S. economic recovery drove stock gains. In Hong Kong, the Hang Seng index added 185.07 points, or 1.68%, to 11,188.07.