Stocks drop as uncertainty over monthly employment report offsets upbeat weekly data on jobs

By Stephen Bernard, AP
Thursday, October 7, 2010

Stocks dip ahead of jobs news, pull back from 11K

NEW YORK — Stocks edged lower Thursday, backing away from early gains, as uncertainty built up ahead of a key report on the labor market.

The Dow Jones industrial average came within two points of 11,000 before turning lower for most of the day. The Dow hasn’t traded above that level since May 4, about a week after reaching its highest point of the year.

Slightly better news on claims for unemployment insurance gave stocks an early lift, but the gains faded quickly as traders opted for caution ahead of Friday’s employment report from the Labor Department, the most crucial piece of news on the economic calendar.

Stocks are coming off a historically strong performance in September, and analysts say the market will need significant doses of positive news on the economy, corporate earnings or, preferably, both before heading decisively higher again. The Dow Jones industrial average gained 10.4 percent in September, but is still 2.1 percent below its 2010 high reached on April 26.

In economic news, first-time claims for unemployment insurance fell last week, a better result than analysts were expecting. Retailers including Macy’s Inc., Abercrombie & Fitch and Limited Brands Inc. reported better-than-expected monthly sales, which initially provided a lift to the market.

The retail-sales news was positive, but “there’s not enough to move the needle given that we’ve got the big jobs report” Friday, said Hank Smith, chief investment officer at Haverford Investments.

The Dow Jones industrial average fell 19.07, or 0.2 percent, to close at 10,948.58. The Standard & Poor’s 500 index fell 1.91, or 0.2 percent, to 1,158.06, while the Nasdaq composite rose 3.01, or 0.1 percent, to 2,383.67.

Falling stocks narrowly outpaced rising ones on the New York Stock Exchange, where consolidated volume came to 3.9 billion shares.

There is a wide range of expectations for how Friday’s jobs report might turn out, said Ed Crotty, chief investor officer at Davidson Investment Advisors. Even upbeat results might not be enough to drive stocks significantly higher.

“If the number is good, there will be skepticism it’s not sustainable,” Crotty said.

Claims for unemployment insurance have been falling steadily in recent weeks, but still indicate that employers aren’t ramping up hiring. Payroll company ADP said Wednesday that private employers trimmed jobs in September for the first time in seven months.

Earnings reporting season got under way for U.S. companies after the market closed Thursday when aluminum maker Alcoa Inc. became the first company that’s part of the Dow Jones industrial average to report quarterly results. Alcoa’s net income fell 21 percent because of lower metals prices, but the results still beat analysts’ expectations.

PepsiCo Inc. reported mixed results earlier in the day. The drink and snack maker said its third-quarter profit jumped in part on revenue gains following its acquisition of its two largest bottlers earlier this year. Earnings matched expectations, but the company narrowed its earnings outlook to a level below analysts’ forecasts.

PepsiCo fell $2.01, or 3 percent, to $66.10. Limited Brands shares rose $1.05, or 3.8 percent, to $28.64, while Abercrombie & Fitch jumped $3.44, or 8.9 percent, to $42.03. Macy’s rose 15 cents to $23.85.

Bond yields remained near their lowest levels since January 2009 as traders expect the Federal Reserve to step up its purchases of Treasurys in order lower interest rates and encourage borrowing.

Cliff Draughn, president and chief investment officer at Excelsia Investment Advisors, said the Fed could act as early as its next meeting that wraps up Nov. 3. The timing of the Fed re-entering the Treasury market hinges on how the investors react to election results Nov 2.

The yield on the 10-year Treasury note, which moves opposite its price, was unchanged at 2.39 percent compared with late Wednesday. Its yield helps set interest rates on a variety of loans including mortgages.

Mortgage buyer Freddie Mac said rates on traditional 30-year fixed-rate mortgages reached their lowest level on records dating back to 1971.

The dollar continued to fall against other major currencies as traders expect U.S. interest rates to fall further. Currencies with higher interest rates become more attractive to foreign exchange traders when U.S. rates fall.

Gold, which is considered a safe alternative to the dollar, hit another record of $1,366.00 an ounce early Thursday before pulling back to $1,335.00 an ounce.

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