Stocks Fail to Advance

Traders absorbed a mix of economic data and news of another suicide bombing in Iraq

Stocks finished lower Thursday in a day of below-average trading volume. Market players digested mixed economic data, fresh violence in Iraq, and some weak news from the tech sector.

The Dow Jones industrial average ended down 2.06 points, at 10,377.52. The broader Standard & Poor's 500 index lost 1.53 points, or 0.14%, to 1,132.03. The tech-heavy Nasdaq composite index moved 14.56 points lower, or 0.73%, to 1,983.67. Semiconductor and telecom-equipment stocks led shares lower. Home-furnishing stocks rose following upwardly revised June-quarter guidance from Leggett & Platt (LEG ).

As violence in Iraq continues, the markets are looking ahead to the scheduled handover of authority on June 30. Suicide bombers killed at least 41 people in separate incidents around Baghdad on Thursday morning.

The impending handover in Iraq is one reason analysts think market volume has been so subdued. The market is just sitting on its hands, says Larry Wachtel, market analyst at Wachovia Securities. Up against "O.K. economic news and an O.K. profit that oil could bubble forth at any time, and we don't know what mischief is going to take place in Iraq," he says. "It's going to stay that way until we're past the Federal [Reserve Board] meeting and the handover of power in Iraq. Right now, it's formless."

In economic news, the Bureau of Labor Statistics' producer price index (PPI) for May -- which was delayed from last week -- arrived in the range expected by economists. Headline finished-goods prices rose 0.8% (vs. 0.7% and 0.5% gains in April and March respectively), while core prices, which exclude food and energy, rose 0.3%, suggesting some inflation, notes S&P's MarketScope.

The three-month average rise in headline PPI was 8.5%, vs. 5.0% over 12 months, with core prices up just 1.7% on the year. The culprit, says economic-research firm Informa Global Markets, is energy. Energy costs have risen at an annualized rate of 16% in the past three months, with food rising at a 19% pace. "Never ignore food -- food prices are rising faster and have greater weight," Informa says.

The weekly read of jobless figures hinted at some economic growth. Initial jobless claims fell 15,000 to 336,000 -- somewhat more than expected -- in the week ending June 12. The four-week moving average slipped to 343,300, from 346,000 the week before. Average claims since the start of the year "support a more stable labor market view, but suggests that faster job growth will take more time," says Informa. Continuing claims jumped 31,000 to 2.9 million after a downward revised drop of 123,000 to 2.86 million the week before.

The survey of economic conditions issued by the Philadelphia Federal Reserve Bank jumped to 28.9, vs. 23.8 in May. The new-orders index rose to 24.0, from 18.3, but the jobs index slipped to 16.8, from 22.6 the month before. The prices-paid index dipped to 51.9, from May's high of 59.6. Prices received fell to 26.3, from 29.1.

Weakness in the tech sector appears to have been sparked by a report from Jabil Circuit (JBL ). The contract manufacturer posted third-quarter earnings of 19 cents per share, vs. 2 cents (on a GAAP basis) on a 33% net revenue rise. The company sees its fourth-quarter earnings per share as high as 23 cents on revenue as high as $1.65 billion. The news somewhat disappointed the Street and the stock dipped 13%. S&P reiterated its accumulate rating, while Schwab SoundView cut its estimates.

Among tech stocks that fell along with Jabil were Hewlett-Packard (HPQ ), which led the decliners on the Dow with a 2% drop. Semiconductor shares were hit hard following Jabil's news, with the Philadelphia Semiconductor index off more than 3%.

Carmaker Ford Motor (F ) raised its second-quarter earnings per share estimate to a range of 45 cents to 50 cents, up from a 30 cents to 35 cents range from continuing operations (excluding items). Ford now expects its 2004 earnings per share to come in as high as $1.75 from continuing operations (excluding items). S&P raised its estimates and keeps its hold rating on the stock. Bear Stearns raised its estimates. Shares were unchanged.

Nutritional-supplement manufacturer NBTY (NTY ) shed 26% after saying that its May-June sales from its Puritan's Pride direct response/e-commerce operations dropped 12%, while Vitamin World retail sales decreased 1%. The company says that the slowdown in sales will affect its overall third-quarter results.

Consultant Accenture (ACN ) says it expects its third-quarter earnings per share to be 37 cents on $3.69 billion in net revenue, up 21% in U.S. dollars. Accenture sees its fourth-quarter EPS (GAAP) as high as 29 cents, on $3.4 billion to $3.5 billion in revenue. S&P reiterated its hold rating. Accenture added 5.9%.

Motor-home maker Winnebago (WGO ) moved 15% higher after posting better-than-expected third-quarter earnings of 51 cents, vs. 25 cents, on a 55% revenue rise. The company set a $30 million stock buyback.

Treasury Market

Treasuries finished higher in price Thursday, bringing the yield on the benchmark 10-year note close to a two-week low. Mixed economic reports and renewed security worries helped fuel higher yields in the morning. Then the headline Philadelphia Fed Index initially pushed prices lower. Following the dip in the employment and prices paid components of the index, prices rose sharply higher again.

Elsewhere in economic news, leading indicators, which aim to forecast economic activity, rose 0.5% in May, vs. an 0.1% rise in April, within expectations. The market largely ignored the data.

In currencies, the dollar ended lower. The euro was at $1.206, and the British pound, at $1.834. The dollar was at 109.66 Japanese yen.

World Markets

European stock markets finished mixed on Thursday. London's Financial Times-Stock Exchange 100 index ended higher by 2.2 points, or 0.05%, at 4,493.30, as May retail sales rose more than expected, up 0.8%. Traders were worried after the Bank of England's Mervyn King commented that expectations of interest rates among all the "major industrial countries have risen as the recovery has become more firmly established," reports MarketScope.

In Paris, the CAC 40 added 3.58 points, or 0.1%, to 3,718.08. Germany's DAX index slipped 17.78 points, or 0.44%, to 3,985.46. Schering was higher after UBS Financial rated the stock a buy.

Asian stock markets finished lower. Japan's Nikkei 225 index slipped 33.82 points, or 0.29%, to 11,607.90. In Hong Kong, the Hang Seng index moved lower by 78.92 points, or 0.65%, to finish at 12,082.86.

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