After being solidly lower in the morning, stocks recovered and ended slighly higher Thursday. Economic reports showed second quarter GDP fell 1%, unchanged from a previous reading, and weekly jobless claims fell.
Also, the FDIC announced that more banks have landed on its "problem" list. The agency said it had 416 banks on its "problem" list at the end of the second quarter, up from 305 at the end of March. Banks on the "problem" list are considered a higher risk of failure and face tougher regulatory scrutiny. The FDIC also said borrowers are falling behind on loans at record levels and across most major loan categories.
In economic news, U.S. second quarter GDP fell 1.0% in the preliminary report, unrevised from the advanced reading released a month ago, after contracting 6.4% in the first quarter. The reading was much better than the 1.5% contraction that markets expected. Among the GDP components, unexpected upward revisions to consumption and residential investment offset a slightly smaller downward revision to inventories. The GDP chain price index was revised to a flat reading from +0.2% previously, while the PCE core index held at a 2.0% pace.
"The stronger than expected reading will likely add more confirmation that the bottom is found," says S&P economist Beth Ann Bovino.
Weekly jobless claims fell 10,000 to 570,000 in the week ended Aug. 22 from 580,000 the week before. Markets expected a 565,000 reading for the week. The four week moving average declined to 566,250 from 571,000 previously. Continuing claims for the week ended Aug. 15 plunged 119,000 to 6,133,000, pushing the insured unemployment rate down to 4.6% from 4.7% the week before, according to S&P.
"S&P's IPC doesn't "expect this recovery to be spelled with either an upper- or lower-case 'V,' but rather a lazy 'U'," says S&P MarketScope. S&P notes its fourth quarter real GDP growth estimate of 0.8% is "downright anemic, when compared with usual growth in the quarter immediately following the end of recession."
On Thursday, the 30-stock Dow Jones industrial average was up 37.11 points, or 0.39%, to 9,580.63. The broad Standard & Poor's 500-stock index rose 2.86 points, or 0.28%, to 1,030.98. The tech-heavy Nasdaq composite index edged up 3.30 points, or 0.16%, to 2,027.73.
Treasuries were lower, with the 10-year notes off 02/32 to 101-17/32 for yield of 3.448%. The 7-year Treasury notes were off 02/32 to 101-02/32 for yield of 3.086% following the government's $28 billion 7-year note auction that was well received.
The dollar fell 0.70 to 77.95, while gold rose to $947.20. Crude oil, which skidded to a $69.83 low this morning, was up 83 cents to $72.26.
Financial stocks such as AIG (AIG) offset weakness among oil and gas and telecom issues.
Among stocks in the news, Boeing (BA) shares rose after the company announced that the first flight of the 787 Dreamliner is expected by the end of 2009 and first delivery is expected to occur in fourth quarter 2010. Boeing has concluded that initial flight-test airplanes have no commercial market value beyond the development effort. Therefore, costs previously recorded for the first 3 flight-test airplanes will be reclassified from program inventory to R&D expense, resulting in an estimated non-cash charge of $2.5 billion pre-tax, or $2.21 per share, against third quarter results.
Citigroup (C) shares rose 0.43 to 5.06 on a report saying hedge fund manager John Paulson has been quietly snapping up shares of beleaguered Citigroup in recent weeks. The New York Post reported that Paulson was said to have acquired a roughly 2% stake in Citi -- below the 5% threshold that would require him to disclose his investment stake in a securities filing.
Toll Brothers (TOL) posted $2.93 third quarter loss per share, vs. $0.
asp?symbol=TIVO'>TIVO) posted second quarter adjusted EBITDA of $5.2 million, exceeding guidance of breakeven to $2 million. It reported a narrower-than-expected $0.03 second quarter loss, vs. $0.03 EPS a year ago, on 8.7% revenue decline. The Street was looking for $0.05 loss. It sees third quarter revenue of $46-$48 million and adjusted EBUITDA of breakeven to loss of $2 million. Also, TiVo filed complaints in U.S. District Court, Eastern District of Texas against AT&T (T) and Verizon (VZ) for infringement of three TiVo patents.
Jo-Ann Stores (JAS) shares rose after the retailer reported $0.13 second quarter loss, vs. $0.47 loss a year ago, on 1.8% higher same-store sales, 4.1% higher net sales and widened gross margins. The Street estimate called for a second quarter loss of $0.39. For fiscal year 2010, the company sees same-store sales approximately flat to up 1%, gross margin rate improving, and EPS of $1.35-$1.50. Street was looking for fiscal year 2010 EPS of $1.10. Wedbush Morgan raises estimates, target; maintains neutral.
Coldwater Creek (CWTR) posted $0.05 second quarter loss, vs. $0.03 EPS, on 10% lower same-store-sales and 6.7% lower net sales. Results were in line with the company's expectations. The retailer expects third quarter results to show sequential improvement. It continues to expect SG&A savings of $30 million for fiscal year 2010 full year and to end the year with at least $100 million in cash.
Shoe Carnival (SCVL) posted $0.08, vs. $0.08, second quarter EPS on 6.4% lower same-store sales and 3.6% lower total sales. The Street was looking for $0.02. Due to improved trends early in third quarter, it expects to record positive same-store sales for the quarter.
American Eagle Outfitters (AEO) posted $0.14, vs. $0.29, second quarter EPS on 10% same-store sales drop, 4.5% total sales drop. It sees third quarter EPS of $0.22-$0.25 vs. $0.30, which includes a tax benefit of about $0.05 associated with the repatriation of earnings from Canada; guidance excludes the possibility of additional impairments or losses related to investment securities.