Stocks Fall on Manufacturing Weakness

An unexpected skid in the Philadelphia Fed's February survey fanned recession fears Thursday

Stocks closed lower Thursday as weaker-than-expected reports on Philadelphia-area manufacturing and the Conference Board's gauge of leading economic indicators stoked worries the economy may be falling into a recession. Investors also weighed reports on first-time unemployment filings and leading economic indicators. Bonds surged in a rebound from Wednesday's slide. Gold and platinum futures hit record highs, while crude oil moved below the $100 mark.

On Thursday, the Dow Jones industrial average finished lower by 142.96 points, or 1.15%, at 12,284.30. The broader S&P 500 index fell 17.50 points, or 1.29%, to 1,342.53. The tech-heavy Nasdaq composite index shed 27.32 points, or 1.17%, to 2,299.78.

Activity in the broader market was negative on Thursday. On the New York Stock Exchange, 23 shares declined in price for every eight that advanced. Nasdaq breadth was 20-9 negative.

"The stock market is having a tough time getting into gear and has been drifting sideways in an ever constricting range," says S&P chief technical strategist Mark Arbeter. "Rallies and declines fail, as there seems to be little conviction either way."

Investors eyed a closely watched gauge of the labor market Thursday. U.S. initial jobless claims fell 9,000 to 349,000 in the week ended February 16. The prior week's 348,000 level was revised up to 358,000. This brought the 4-week moving average up to 360,500 from 349,750, reports Action Economics, representing a new multi-year high. Though the average reflects erosion in the labor market, says Action, the levels still aren't recessionary. Continuing claims rose another 48,000 to 2,784,000 from a revised 2,736,000 (previously 2,761,000).

The Philadelphia Fed index of manufacturing conditions fell to -24.0 in February, the

lowest reading since February, 2001, after falling 19 points to -20.9 the month before. Markets expected the index to improve to -12. The employment index rose to 2.5 from -1.5, while new orders improved to -10.9 from -15.2. Shipments fell to -12.2 from -2.3, while unfilled orders dropped to -10.9 from -6.2. Prices paid edged down to 46.6 after rising 13 points to 49.8 the month before, while prices

received fell to 24.3 following a near 17 point jump to 32.0 previously.

U.S. leading indicators fell 0.1% in January to 135.8, from a revised -0.1% in December (-0.2% previously) and the fourth consecutive monthly decline. Four of the 10 indicators were in negative territory, led by stock price weakness and building permits.

While in line with expectations, the continued weakness in the leading indicators will add to investors' slowdown fears, says S&P Economics.

With Thursday’s reports on the books, the market’s focus will switch to next week’s events, including congressional testimony from Fed chairman Ben Bernanke, and reports on the producer price index, durable goods orders, new home sales, gross domestic product, and personal income.

April NYMEX crude futures fell $1.47 to $98.23 per barrel Thursday following a weekly Energy Dept. inventory report that showed crude oil stocks rose 4.2 million barrels.

Comex April gold futures rose $11.40 to $949.20 Thursday as some traders sought to hedge against inflation. There's speculation gold will push to $1,000 soon as some see the yellow metal underpriced when adjusted for inflation, says S&P MarketScope.

Among Thursday’s stocks in the news, J.C. Penney (JCP) posted better-than-expected fourth quarter earnings per share of $1.93, vs. $2.09 one year earlier, on a 2.3% same-store sales drop and a 4.1% total sales decline. The company sees EPS of 75-80 cents for the first quarter and $3.75-$4.00 for all of fiscal 2009.

Research In Motion (RIMM) expects net subscriber account additions for the fourth quarter to be about 15%-20% higher than the 1.82 million net subscriber account additions it forecasted on Dec. 20. The total BlackBerry subscriber account base is expected to be approximately 14 million at the end of the quarter.

The company continues to expect fourth-quarter revenue and earnings per share (EPS) to be within ranges previously forecast in December.

Novatel Wireless (NVTL) reported fourth-quarter EPS of 40 cents, vs. 14 cents one year earlier (non-GAAP, excluding stock-based compensation charges), on 53% higher revenue. However, the company sees first quarter non-GAAP EPS of 27 cents on $110 million in revenue, which is reportedly below analysts' expectations for the period.

Analog Devices (ADI) reported better-than-expected first-quarter EPS from continuing operations of 40 cents, vs. 44 cents one year earlier, on a 2.0% revenue decline. The company sees second-quarter revenue of $615-$640 million and EPS from continuing operations of 39-42 cents. ADI settled patent infringement lawsuits with Linear Technology; the companies won't be required to pay damages in connection with the settlement.

Choicepoint (ADI) entered into a deal to be acquired by Reed Elsevier, a publisher and information provider owned equally by Reed Elsevier PLC (RUK) and Reed Elsevier NV (ENL) in a $4 billion deal. Terms: $50 cash per Choicepoint share.

KLA-Tencor (KLAC) will make a friendly tender offer to acquire ICOS Vision Systems (IVISF) in a $465.8 million deal. Terms: 36.50 euros in cash per ICOS share. Separately, ICOS posted fourth-quarter income from operations of 2.6 million euros, vs. 1.7 million euros one year earlier, on a 4.6% revenue rise.

In an SEC filing, Furniture Brands (FBN) said Sun Capital Securities has offered to acquire the company "at a substantial premium" to its recent stock price of "$10.18."

Zale Corp. (ZLC) posted second-quarter EPS from continuing operations of $1.16, vs. $1.57 one year earlier, on 7.3% lower same-store sales and 7.2% lower total sales.

Major European indexes finished higher Thursday, though below the best levels of the session. In London, the FTSE 100 index gained 0.77% to 5,938.70. In Paris, the CAC 40 index rose 1.07% to 4,864.23. Germany’s DAX index added 0.63% to 6,943.37.

Equity indexes in Asia finished higher Thursday. Japan’s Nikkei 225 index jumped 2.84% to 13,688.28. In Hong Kong, the Hang Seng index gained 0.14% to 23,623.00.

Treasury market

Treasuries rallied Thursday as a weaker reading in the Philadelphia Fed index reignited fears of economic recession. The 10-year note rose 33/32 in price to 97-27/32 for a yield of 3.76%. The 30-year bond climbed 35/32 to 97-12/32 for a yield of 4.54%. A flight to safety and out of equities contributed to the bullish backdrop for


Concerns over a "stagflationary" scenario in which sagging growth is accompanied by rising inflation are driving investor psychology in the bond market, says S&P MarketScope.

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