Stocks finished mostly lower Thursday, with tech stocks flat, as investors weighed war and economy worries including the latest update on productivity and a mixed bag of earnings news.
The Dow Jones industrial average lost 55.88 points, or 0.70%, to 7,929.30. The broader Standard & Poor's 500-stock index slipped 5.44 points, or 0.65%, to 838.15. The tech-laden Nasdaq composite index gained 0.23 point, or 0.02%, to 1,301.73.
The winding path to war with Iraq will have investors nervous for some time. "This is an event-driven market and will remain very sensitive to what is going on overseas," says Chris Jarvis, Associate Director of Research at Advest. He expects the U.S. to be backed by a hesitant multinational force with France and Russia on board but Germany possibly staying on the sidelines.
As support from allies continues to be weak, President Bush is said to be considering a new move at the U.N. Security Council to specifically authorize the use of force against Iraq.
If the "theatre of operation" is contained to Iraq, Jarvis says, the markets will rally as some of the uncertainty dissipates and a new regime change brings in better stability for the region." North Korea's nuclear weapon efforts, if it were to "continue to escalate could quickly put the kibosh on a post Iraq war victory party."
Secretary of State Colin Powell told senators Thursday that "within weeks" the Iraqi situation will be brought to a conclusion "one way or another." Economic research outfit MMS International figures that the February 14 report from weapons inspectors may be the final catalyst for confrontation.
Disappointing economic data did not help markets Thursday. Productivity fell 0.2% while costs rose 4.8% in the fourth quarter. Companies pulled back production amid a stagnant economy. MMS expected a small 1.0% gain in and a 3% rise in unit labor costs.
On Friday, investors will be faced with January unemployment data. The household survey part of the employment report, which includes unemployment rate data, will be reported with significant revisions. Economists are projecting a 6% unemployment rate for the month, unchanged from December.
Meantime, electronics and testing equipment maker Agilent Technologies (A ) was the latest tech company to issue a cautious outlook, saying that customers are holding off on buying amid geopolitical uncertainty. It warned that first-quarter results will far short of estimates.
On Friday, investors will also be mulling earnings from Electronic Data Systems (EDS ). After the close of trading Thursday, EDS reported fourth-quarter earnings of 75 cents a share, down from 82 cents one year earlier. Of more concern: revenues fell to $5.5 billion, from $5.8 billion.
Comments from Dell's chief operating officer Kevin Rollins late Thursday may also weigh. Rollins said that a "massive resurgence in IT spending" would not materialize when the economy improves. The rebound will be "muted," according to Rollins.
Retail sales numbers provided a mixed picture on consumer spending. "January tends to be the least important month of the year [for retail] and one that is characterized by markdowns and inventory clearance," says Donald Trott, analyst at Jefferies & Co.
Wal-Mart (WMT ) said its same-store sales rose 2.3% in January. Wal-Mart also raised its 2003 profit forecast, advising that earnings per share for the year ended January 31 will be $1.80, up from its previously forecasted range of $1.76 to $1.78.
Many other retailers reported disappointing sales as shoppers worry about possible war and the stumbling economy. Shares in J.C. Penney (JCP ), Federated Department Stores (FD ) and Sears both fell after announcing worse-than-forecasted sales.
U.S. Treasury prices rose sharply amid continued geopolitical clouds and weakness in equities. The market appears to be setting up for another weak payroll report Friday.
U.S. initial jobless claims in the week ended Feb. 1 fell 11,000 to 391,000, which provides a signal that the job market is stabilizing. This is the third decline in five weeks, suggesting that companies may be firing fewer employees.
European stocks finished lower after a surprise decision by the Bank of England to reduce its benchmark rate to the lowest level since 1955. London's FTSE index slipped 81.70 points, or 2.22%, to 3,597.00. Paris' CAC-40 index finished down 8.44 points, or 1.68%, to 2,836.18. In Frankfurt, the DAX index fell 76.88 points, or 2.82%, to 2,649.00, after a report showed that German manufacturing fell more than the expected 4.1% in December.
In Asia, stocks finished down. According to media reports, Japan said evidence presented by the U.S. had deepened doubts about the status of Iraq's weapons program but it stopped short of expressing public support for a U.S.-led military attack on Iraq. Japan's Nikkei 225 index lost 65.66 points, or 0.77%, to 8,484.19. Hong Kong's benchmark Hang Seng lost 54.32 points, or 0.59%, to 9,126.15.