Stocks pull back as traders await gross domestic product report, look past strong earnings

By Stephen Bernard, AP
Thursday, July 29, 2010

Stocks fall as traders await Friday’s GDP report

NEW YORK — Stocks fell Thursday as investors took a dim view of the latest report on unemployment and warily waited for the government’s reading on second-quarter gross domestic product.

Stocks initially rose on upbeat earnings reports, but momentum quickly faded. The Dow Jones industrial average fell about 20 points in afternoon trading and other major stock indexes also fell.

Southwest Airlines Co., ExxonMobil Corp., Avon Products Inc. and Sony Corp. all topped earnings forecasts, but investors were more focused on economic numbers. The Labor Department said initial claims for unemployment benefits dropped by a modest 11,000 to 457,000 last week. That’s slightly better than the 459,000 forecast by economists polled by Thomson Reuters, but not good enough to keep traders buying.

“They saw it was more of the same,” said Bryan Jordan, director of financial markets analysis at Nationwide Investments. “This is an unusually stagnant labor market.”

Daniel Penrod, senior industry analyst at the California Credit Union League, said investors are concerned because there hasn’t been a consistent decline in the number of claims for unemployment benefits.

“The stops and starts are likely to cause more hesitation” in the stock market, Penrod said.

Stock trading has been bumpy the past few months as investors tried to reconcile conflicting views of the economy. Government and private reports have pointed to a slowdown in growth while companies has issued optimistic outlooks. So, while the latest earnings reports looked good, investors are also well aware that the Federal Reserve said Wednesday that the recovery is weakening in some parts of the country.

“A bull market needs a continuing feeding of good news,” said Alan Gayle, senior investment strategist at RidgeWorth Investments. Economic reports have been “soft” this week, he said.

Traders were uneasy while they waited for the GDP, the broadest measure of the economy. Economists are forecasting that the GDP slowed in the second quarter to an annual rate of 2.5 percent as the government cut back on economic stimulus programs. That would be down from the first quarter’s 2.7 percent.

In afternoon trading, the Dow fell 20.51, or 0.2 percent, to 10,478.81. The Standard & Poor’s 500 index fell 4.36, or 0.4 percent, to 1,101.77, while the Nasdaq composite index fell 11.11, or 0.5 percent, to 2,253.45.

Advancing and declining stocks were about even on the New York Stock Exchange, where volume came to a low 604.7 million shares. Volume has been unusually low because many traders are waiting for the market to settle on a direction before they start buying or selling.

Bond prices were mixed. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.02 percent from 2.99 percent late Wednesday.

Stock losses accelerated in the late morning, analysts said.

“It doesn’t matter what the news is,” said Brian Singer, chief investment officer at Singer Partners. “What happens is, any move one direction or another results in a pile-on effect.”

Southwest reported income that beat analyst forecasts. The company reported heavy traffic to start the summer travel season. ExxonMobil’s earnings rose as a result of higher oil prices. Beauty products seller cited sales in Europe and Latin America for its higher income.

Japanese electronics maker Sony also reported strong earnings because of a jump in sales of televisions and PlayStation 3 gaming consoles.

Avon Products rose 64 cents, or 2.2 percent, to $30.17. Sony shares trading in the U.S. jumped $2.23, or 7.5 percent, to $31.79. Southwest shares rose a penny to $12.02. ExxonMobil dipped 37 cents to $60.54 after rising earlier in the day.

Colgate-Palmolive’s earnings beat forecasts, but revenue fell short of expectations. It also said it would take a bigger charge than previously expected because of Venezuela’s devaluation of its currency. When currencies in other countries fall, overseas profits for U.S. companies also come in lower when they’re translated into dollars.

The consumer products maker’s stock fell $5.91, or 7.1 percent, to $77.95.

Strong earnings and company forecasts initially helped stocks in Europe as well, before those indexes also retreated. European investors initially bid up stocks following earnings reports from pharmaceuticals company AstraZeneca PLC, drug and materials company Bayer AG and telecommunications companies BT PLC and France Telecom SA.

Moody’s Investors Service said ratings on banks in Europe would not be affected following tests by regulators on the continent to determine whether banks would survive a further economic slowdown. Only seven of 91 banks failed the test, which reassured investors that the financial industry in Europe is stronger than previously thought.

The euro rose to $1.3068, and earlier in the day touched its highest level since early May.

Britain’s FTSE 100 fell 0.1 percent, Germany’s DAX index fell 0.7 percent, and France’s CAC-40 dropped 0.5 percent. Japan’s Nikkei stock average fell 0.6 percent.

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