U.S. stocks closed lower Thursday, in concert with a plunge in Treasury securities after a poorly received $14 billion auction of 30-year bonds sent interest rates higher.
The stock market's pullback follows recent gains and precedes Thursday's 5:00 p.m. ET release of bank stress test results by the government. Results have been widely leaked in the media. None of the 19 banks tested have failed, seven banks need to boost capital by $65 billion in the next two years, and six won't need additional capital. Treasury Secretary Timothy Geithner says the results were helpful.
Traders weighed reports that U.S. weekly initial jobless claims fell 31,000 to 601,000 but continuing claims rose to a record 6,351,000; and first-quarter productivity rose at a more-than-expected 0.8% rate. Consumer credit plunged a record $11.1 billion in March.
Meanwhile, some investors were also nervous about Friday's April nonfarm payrolls report.
Federal Reserve Chairman Ben Bernanke said lessons from the financial crisis show the need for strengthening risk management and supervisory procedures in a speech to a Chicago Fed conference Thursday morning.
On Thursday, the 30-stock Dow Jones industrial average finished lower by 102.43 points, or 1.20%, at 8,409.85. The broader S&P 500 index fell 12.14 points, or 1.32%, to 907.39. The tech-heavy Nasdaq composite index was lower by 42.86 points, or 2.44%, at 1,716.24. On the New York Stock Exchange, 20 stocks were lower in price for every 10 that advanced. Nasdaq breadth was 19-8 negative.
The dollar index fell. Gold futures finished flat. Crude oil futures edged higher.
With so much information already out about the stress test results, stocks may have been in a "buy the rumor, sell the fact" mode Thursday, according to S&P MarketScope.
U.S. bank stress test results will be released to the public at 5:00 p.m. ET, according to the Fed and Treasury joint statement released late Wednesday. That statement also detailed a time line and necessary capital requirements -- "Any bank holding company needing to augment its capital buffer will have until June 8, 2009 to develop a detailed capital plan," according to the Fed, "and until November 9, 2009 to implement that capital plan." Bank holding companies will need to achieve a Tier 1 risk-based ratio of at least 6%, and a Tier 1 Common risk based ratio of at least 4% at the end of 2010."
"Individual bank results of the stress tests have been leaked all week such that the actual report is likely to be a non-event this afternoon," notes Action Economics.
In economic news Thursday, U.S. jobless claims fell 34,000 to 601,000 in the week ended May 2, from 635,000 the prior week (revised from 631,000). The four-week moving average fell to 623,500 from 638,250. Continuing claims continued to surge, however, rising 56,000 to 6,351,000 in the week ended April 25, and another weekly record high.
"While the continuing claims record data may remove some risk appetite from the table, the moderation in the headline data and the better productivity report could help mitigate" the continuing claims news, says S&P senior economist Beth Ann Bovino.
Output per hour in the U.S. nonfarm business sector rose 0.8% (annual rate) in the first quarter, better than the consensus estimate of 0.4%. The rise implies a 3.3% increase in unit labor costs. Productivity remains up a healthy 1.8% from a year ago, with unit labor costs up a moderate 2.4%.
U.S. consumer credit plunged a record $11.1 billion in March, much deeper than expected (median $4.1 billion). It follows a downwardly revised $8.1 billion drop in February (was -$7.5 billion). The March data has maintained the downside trend for consumer credit as the recession and the weakness in the auto sector take a toll. Revolving credit fell $5.4 billion, after a downwardly revised $9.7 billion plunge in February (was -$7.8 billion). Non-revolving credit dropped $5.7 billion.
Fed Chairman Bernanke said lessons from the financial crisis of the last two years show the need for banks, and regulators to strengthen risk management and supervisory procedures. He also noted the importance of monitoring capital levels, as well as liquidity management. He also urged Congress revise provisions of Gramm-Leach-Bliley to ensure supervisors have adequate powers. On compensation matters, he said pay policies should promote the long run health of firms.
In company news Thursday, retailer announced April sales. Wal-Mart (WMT) reported a 5% same-store sales gain, handily beating estimates thanks partly to the Easter shift, but will no longer report monthly sales figures, only quarterly. Yet Costco (COST) sales were flat and BJ's Wholesale Club's (BJ) sank 4.9%.
PepsiAmericas (PAS) said it has informed PepsiCo (PEP) that its Board of Directors has unanimously determined that PepsiCo's non-binding proposal to acquire all outstanding PepsiAmericas common shares not already owned by PepsiCo for $11.64 in cash and 0.223 PepsiCo share per PepsiAmericas share is not acceptable and is not in the best interest of its shareholders.
In earnings news, General Motors Corp. (GM) posted a first-quarter adjusted loss per share of $9.66, vs. a $0.67 loss one year earlier, on a 47% revenue drop. Wall Street was looking for an $11.05 loss. The automaker said results reflect continuation of the global economic downturn and lower industry-wide sales volume. But GM noted that losses were partially offset by strong structural cost reduction due to aggressive restructuring efforts.
Cisco Systems (CSCO) reported third-quarter non-GAAP earnings per share of $0.30, vs. $0.38 one year earlier, on a 17% revenue decline. THe company posted $0.23 GAAP EPS. Wall Street was looking for EPS of $0.25. Cisco sees fourth-quarter revenue down 17%-20%.
Prudential Financial (PRU) posted $1.05 vs. $1.57 first-quarter adjusted operating EPS, ahead of Wall Street's view of $0.83. The company sees 2009 adjusted operating EPS of $4.80-$5.20.