Stocks Finish Lower
Stocks Thursday finished lower, though off their worst levels, amid worries about rising interest rates, ongoing violence in Iraq, and the outlook for earnings beyond the first quarter.
The Dow Jones industrial average dropped 70.33 points, or 0.68%, to 10,272.27. The broader Standard & Poor's 500-stock index declined 8.53 points, or 0.76%, to 1,113.88.
The Nasdaq composite index fell 30.76 points, or 1.55%, to 1,958.78, led lower by chip stocks. The Nasdaq's losses came on heavier trading volume than in the previous session, notes economic research firm Informa Global Markets, suggesting that big fund accounts were raising cash again as declining stocks outnumbered advancers 2-to-1.
Earlier in the session, a report on first-quarter gross domestic product was weaker than expected, while the latest initial jobless claims data were better than economists' forecasts.
An advance read on first quarter GDPcame in at 4.2% in the first quarter ended Mar. 31. Wall Street had been expecting a 5% rate of expansion. With the lower pace of growth came rising inflation trends. The chain-price deflator for GDP rose 2.5% -- vs. economists' consensus forecast of 2.0% -- and the core personal consumption expenditures index, rose to 2.0% from 1.2% in the fourth quarter.
The markets also got more positive news on employment. First-time jobless claims in the week ended Apr. 24 fell 18,000 to 338,000, the sharpest weekly decline since a 28,000 drop in the week ended Feb. 14. Analysts had expected claims to level out to 345,000. Strong employment news, though welcome, also carries with it the specter of higher interest rates.
"Taken together today's data still signal above trend GDP growth, but likely with slightly less productivity growth, slightly higher unit labor cost growth and slightly accelerating inflation," writes an analyst at investment bank UBS. "All these developments strengthen our forecast that the Fed will tighten this summer, most likely in August, but possibly as soon as June."
Rate-hike worries come against a backdrop of improving corporate profits. "The first quarter earnings season is coming in as the best quarter for earnings on record," notes Jeff Kleintop, chief investment strategist at PNC Advisors. "In addition, the return of corporate pricing power is adding to earnings momentum as cost cutting fades as a key driver."
Investors continue to cast a wary eye on geopolitical developments, especially continuing violence in Iraq. Ten U.S. soldiers were killed Thursday in attacks around Baghdad, eight of them in a car bomb explosion just south of the capital, according to wire-service reports.
In earnings news Thursday, DaimlerChrysler (DCX ) said first-quarter profit rose 10%. The automaker raised guidance for its U.S. arm Chrysler.
Exxon Mobil (XOM ) said net quarterly profit fell 23%, but earnings before charges rose, lifted by higher energy prices. The energy giant reported net income of $5.44 billion, or 83 cents a share, down from $7.04 billion, or $1.05 per share last year.
Gillette reported profit of $376 million, or 37 cents a share, compared with $263 million, or 25 cents a share, a year earlier, beating consensus forecast of 29 cents a share. Results were boosted by sales of new razors, cost cuts, and the weak dollar.
Defense contractor Raytheon (RAY ) said Pentagon contracts helped first-quarter growth in sales and net earnings, but income from continuing operations slipped on pension expenses. The company reported net earnings of $128 million, or 30 cents per share, up from with $95 million, or 23 cents per share.
Health insurer Aetna (AET ) said quarterly profit rose on increased membership in its medical plans and lower operating expenses. It reported net income of $365.8 million, or $2.28 per share, up from from $330 million, or $2.12 per share a year ago.
Dow Chemical (DOW ) said quarterly profit jumped on strong sales of farm chemicals and car plastics. It posted first-quarter net income of $469 million, or 50 cents per share, up from $76 million, or 8 cents, in the same period in 2003.
In other company news, the markets were abuzz over the upcoming initial public offering of search engine Web site Google. The company filed the necessary registration documents to U.S. regulators Thursday. Google hopes to sell as much as $2.7 billion in stock.
Earnings Friday will include Alcatel (ALA ), Allergan (AGN ), Archer Daniels Midland (ADM ), Avon Products (AVP ), Cigna (CI ) and Procter & Gamble (PG ).
In economic data, investors will get the March update on personal spending and income as well as the University of Michigan Consumer Sentiment figure for April. The April update on Chicago PMI, a measure of manufacturing health for the Midwest region, is due at 10:00 a.m. ET.
U.S. Treasuries prices finished lower as a report on economic growth came in mixed. Tony Crescenzi, chief bond market strategist at Miller Tabak, says that despite the lower-than-expected growth reading, first-quarter GDP was bearish for the bond market due to higher-than-expected inflation gauges. Crescenzi observes "chatter about likely wording of next week's FOMC statement with many expecting a more hawkish tone." The bond market fears next week's payroll report will show another big jump, he says.
European stock markets moved lower Thursday, taking their cue from weakness in U.S. stocks.
London's Financial Times-Stock Exchange 100 index lost 5 points, or 0.11%, to 4,519.50, despite weakness in mining stocks amid fears Chinese demand could diminish. Oil giant Shell offset losses on news of a share buyback.
In Paris, the CAC 40 index lost 33.20 points, or 0.89%, at 3,689.39. Germany's DAX index shed 56.83 points, or 1.40%, to 4,008.91.
Trading in Japan was closed for Greenery Day Thursday. On Wednesday, the Nikkei 225 index lost 40.59 points, or 0.34%, to close at 12,004.29, amid ongoing worry over the tech sector's outlook. Trading reopens Friday.
In Hong Kong, the Hang Seng index fell 159.73 points, or 1.31%, to close at 12,005.58.
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