Stocks End Slightly Lower

Reports showing softness in retail sales and import prices weighed on equities, while Treasuries rallied on the news

Stocks closed modestly lower on Wednesday, with the major indexes each in the red by about about 0.3%. Investors focused on the retail sector, with the release of a report showing a small drop in retail sales for the month of April.

The Dow Jones industrial average was down 31.43 points, or 0.36%, to 8,647.82. The broader Standard & Poor's 500 stock index was down 3.02 points, or 0.32%, to 939.28. The tech-heavy Nasdaq composite index was lower by 4.77 points, or 0.31%, to 1,534.91.

The U.S. Commerce Dept. reported that April retail sales were down 0.1%, compared to an upwardly revised 2.3% gain in March. Without auto sales, the new sales figure dips to 0.9%. The report raises the chances that the Federal Reserve will cut rates in June, says Standard & Poor's MarketScope. In other economic news Wednesday, import prices fell a larger-than-expected 2.7%, and export prices fell 0.1%.

Though the markets ended the day below their start, analysts point out that in general, the markets are 17% higher than March levels. That doesn't make everyone comfortable, though. "I'd like to see some retracement," says Michael Farr, president and chief investment officer at investment firm Farr, Miller & Washington. "To give up 30 points on back-to-back days of bad news – first geopolitical news on Tuesday, then weak economic news on Wednesday – seems too subdued."

Semiconductor equipment makers took it on the chin Wednesday after some tepid guidance from Applied Materials (AMAT ). After Tuesday's close, AMAT announced a quarterly net loss of $62 million, or 4 cents per share. The company sees sales in the current quarter flat to down from the one just completed, with orders also flat. Applied Materials closed down 3.8%. Shares of KLA-Tencor (KLAC ) and Teradyne (TER ) moved lower in sympathy.

Shares of mobile phone manufacturer Motorola(MOT ) shot higher by 9.9% after the company reiterated its second-quarter guidance. Motorola expects earnings per share of 1 cent to 3 cents on sales between $6.4 and $6.6 billion, according to its quarterly report filed Tuesday.

Also in technology, networking-equipment outfit Juniper Networks (JNPR ) closed 4.3% higher after Citigroup upgraded the stock to outperform, from in-line. Citigroup also upgraded the telecommunications equipment sector to marketweight from underweight.

IT consulting firm Computer Sciences (CSC ) posted fourth-quarter earnings of 95 cents, above analysts' estimates. The stock closed up 9.6%.

In pharmaceuticals, Millennium Pharmaceuticals ( MLNM ) enjoyed more than an 11% surge in European markets after getting Food & Drug Administration approval for Velcade, the company's blood cancer treatment. The stock rose 15.13% to close at 14.38.

Williams Cos. (WMB ), which transports and stores natural gas, saw its shares rise 14.2% to close at 7.96, after Prudential upgraded the stock to buy, from hold.

In retail, high-end jeweler Tiffany & Co. ( TIF ) announced first-quarter earnings of 24 cents per share. The company exceeded analysts' expectations by reporting 3% higher net sales. Tiffany stock closed 11% higher.

J.C. Penney ( JCP ) reported slack earnings on Tuesday, and Goldman Sachs downgraded the stock on Wednesday to underperform, from in-line. Penney ended down 8.6% Wednesday.

Drugstore operators Rite Aid (RAD ) and Duane Reade (DRD ) were each lower Wednesday. Rite Aid lost 4% by the end of the day, after Merrill Lynch downgraded the stock to hold, from buy. Duane Reade closed 6.3% lower after saying that New York State legislation, if enacted, could have an adverse effect on its 2003 earnings.

The weekly jobless claims figure will be updated on Thursday, with some analysts expecting the current market rally to stall if labor market indicators don't improve. Economic research outfit MMS International, expects initial claims to slip 5,000 to the 420,000 level in the week that ended May 10. "Despite the anticipated decline, a number in line with our estimate would likely be seen as supportive of the view that labor market conditions remain weak," says MMS.

In another report expected Thursday, MMS estimates that the overall producer price index will drop 0.8%. Industrial production and capacity utilization data are also slated for Thursday. The April consumer price index, housing starts, and University of Michigan consumer sentiment are due on Friday.

Treasury Market

Treasuries rallied again Wednesday as weaker than expected data on retail sales and trade prices added to rising deflation fears, says MMS International. The yield on the 10-year note was 3.537%, undercutting March's low yield of 3.549%, reaching near 43-year lows. The 30-year bond hit a record low yield of 4.54%.

Treasuries have been on a tear since last week, as the Fed's revelation that it is now focused on the threat of deflation gave the market plenty of reason to rally. Traders now await Thursday's data on producer prices with great anticipation, says economic research outfit MMS International.

World Markets

European markets enjoyed a slight rebound in early trading Wednesday, but closed mixed. Germany's DAX index was up 12.6 points, or 0.43%, at 2,922.55. Deutsche Lufthansa, Europe's third-largest airline, reported a loss of 360 million euros in its first quarter, saying that it expects a pre-tax loss this year. The company suffered from a slower economy, and travelers' concerns about severe acute respiratory syndrome, and the war in Iraq. The airline's first-quarter sales dipped 4.6 percent to 3.7 billion euros.

In France, the CAC 40 index closed down 0.06% at 2,961.83.

London's FTSE 100 index snuck past the 4,000 mark, but then slipped right back below on Wednesday, to close at 3,975.00, down 0.62%.

April labor data arrived in the U.K. Wednesday morning, and surprised analysts by showing unemployment claims falling.

Asian markets closed mixed. Japan's Nikkei 225 average closed 0.7% higher, at 8,244.91. Leading the Nikkei higher: Sony (SNE ), which surged 4.1% on news that the company would market a new handheld PlayStation game device by the end of next year. Phone giant NTT finished 1.6% higher.

In Hong Kong, the Hang Seng index finished down 0.17% to 9,103.69.

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