Stocks ended lower amid worries that interest rates will soon rise. Friday's employment report for the month of February also kept markets in check.
Investors are struggling with multiple anxieties. A stronger economy without jobs growth may signal an end to consumer strength. But the rebounding economy also suggests that higher interest rates are on the way. In addition, the impressive gains logged by the major equity indexes in 2003 have many concerned that stocks are overvalued.
On Tuesday, the Dow Jones industrial average finished down 86.66 points, or 0.81%, to 10,591.48. The broader Standard & Poor's 500-stock index lost 6.87 points, to 0.59%, to 1,149.10. The tech-heavy Nasdaq composite index fell 18.14 points, or 0.88%, to 2,039.66.
In economic news Tuesday, Challenger, Gray and Christmas said that layoff announcements were at 77,250 in February, the lowest level in five months, compared with 138,117 a year ago. The result is encouraging, given that the layoff number has been running fairly strong through the autumn and early winter. Still, big losses of jobs are coming from retailing and factories.
"Forecasts are looking for payrolls growth of around 150,000, but such predictions have recently overstated the strength of jobs growth," says Kamalesh Rao, vice president of the economy group for Moody's Investors Services. He notes the latest reports from the ISM manufacturing index that showed a "notable rebound in hiring activity" and the recent Challenger layoffs data.
"The data may be an encouraging sign, but it is not clear if the statistic has any real bearing on the payroll numbers," Rao says, noting that monthly swings in job cuts are volatile and are not always reliable predictors in payroll trends.
Europe's car companies said 2004 was off to a slow start, but they expect sales to strengthen this year as new models hit the sales floor. U.S. automakers reported a similar sluggish beginning of the year.
In company news, Dow component General Electric (GE ) said in its annual report that it has about $5.3 billion of exposure to bankrupt airlines. Separately, Chairman Jeff Immelt said the company's revenue in Eastern Europe, Russia, and Iraq should more than quadruple to $5 billion in 2005.
Another Dow member, Hewlett-Packard (HPQ ) said it signed a printing services deal with Ford Motor Co. (F ). The company called the contract its largest-ever imaging and printing services contract.
Telecom provider SBC Communications (SBC ), also a Dow component, said that it is considering selling its rural phone lines.
Technology was higher, led by strength in the chip sector. The group was helped by Fairchild Semiconductor (FCS ), which raised its forecast for first-quarter revenue on strong demand for its products.
Also helping chips, Banc of America Securities lifted its rating on Texas Instruments (TXN ) to "buy" from "neutral," on improved semiconductor pricing and strength in the handset market.
In other tech news, Electronic Data Systems (EDS ) said federal regulators have asked for additional information related to its contract to upgrade the U.S. Navy's computer networks.
In earnings news, BJ's Wholesale Club (BJ ) said Tuesday quarterly earnings climbed higher, beating expectations that profits would decline, on strong January sales and steep gasoline prices.
The earnings calendar this week is relatively light. Earnings due Wednesday include several retail names: Chico's FAS (CHS ) Costco Wholesale (CHS ) Hot Topic (HOTT ) Neiman Marcus Group (NMGa ) and Saks (SKS ).
Among economic data due Wednesday: updates on mortgate applications, the Institute of Supply Management's non-manufacturing gauge for February and the Beige book, the Federal Reserve's anecdotal report on the economy. Still, the employment report coming Friday is this week's most influential.
Treasuries dropped sharply amid signals that job growth is on the mend. Monday's update on manufacturing showed jobs in the sector increased, helping to raise expectations for an in-line jobs report Friday. But for Treasuries the data raise the possibility of a Federal Reserve interest rate hike before the end of the year.
In currencies, the dollar surged against the euro, British pound, and yen as the greenback broke through several resistance levels.
In a speech to the Economic Club on New York, Greenspan noted that the dollar's recent decline should eventually curb huge U.S. trade deficits without leading to major disruption.
European stock markets finished higher after a mixed peformance ealier in the session. Automakers were in focus ahead of U.S. vehicle sales data. Traders in the U.K. are also weighing the possibility of a rate hike by the Bank of England on Thursday. The London's Financial Times-Stock Exchange 100 index finished up 3.10 points, or 0.07%, to 4.540.10. Germany's DAX index added 45.91 points, or 1.13%, to 4,100.34. In Paris, the CAC 40 gained 36.49 points, or 0.97%, to 3,785.36.
In Japan, markets hit fresh highs, led by domestic stocks, as investors bought on economic optimism. The Nikkei 225 index gained 90.39 points, or 0.80%, to 11,361.51. In Hong Kong, the Hang Seng index lost 187.30 points, or 1.35%, to 13,731.35.