U.S. Stocks Trade Mixed; Dow Decline Led By Wal-Mart
NEW YORK (MarketWatch) -- U.S. stocks traded mixed Thursday as nervous sentiment dominated ahead of Federal Reserve Chairman Ben Bernanke's speech tomorrow, with Dow component Wal-Mart Stores declining 2% after Merrill Lynch cut its shares to sell.
"The Dow was up a good 250 points yesterday, so this is a minor, minor pullback," said Marc Pado, U.S. market strategist at Cantor Fitzgerald.
"We've got Ben Bernanke talking tomorrow so the market is just a little nervous about what he might say," Pado said. "The weakness this morning is not really heavy selling considering the volatility we've seen of late."
The Dow Jones Industrial Average dropped 39 points at 13,249, with 22 of the 30 Dow components in negative territory.
Leading the declines, shares of Wal-Mart fell 2% after Merrill Lynch cut them to sell, citing margin erosion at the company's core U.S. division.
"We're headed for some profit taking after yesterday's surge," said Peter Cardillo, chief market economist at Avalon Partners. "The market will be preparing for the long weekend so most of the market action will take place today."
"Tomorrow we have Mr. Bernanke speaking and today we'll have nervous investors wanting to take some profits before he speaks," Cardillo said.
The S&P 500 index fell 3 points at 1,460 points.
Shares of JP Morgan Chase & Co. and Citigroup fell 1%.
Financial shares were broadly lower after analysts at Lehman Brothers lowered their forecasts for the second half of this year and 2008 for Bear Stearns Cos. , Goldman Sachs Group Inc. , Merrill Lynch & Co. and Morgan Stanley .
Nasdaq gains
Bucking the negative trend, the technology-laden Nasdaq Composite rose 10 points at 2,573.
"Technology, when you look at the whole subprime mess, it doesn't have any direct exposure to that," Pado said. "Within the GDP revision was a big upgrade of business spending. Housing was revised down. That's probably the main reason why tech is doing so well today."
The U.S. economy bounced back in the second quarter, growing at a 4% annual real growth rate, the Commerce Department reported Thursday. The upward revision to GDP was largely due to an improved trade balance and to the biggest increase in investments in commercial buildings in 26 years.
Shares of Dell Inc. rose 2% ahead of the No. 2 PC company's second-quarter earnings report, due after the market closes. Analysts surveyed by Thomson Financial estimate Dell will earn 30 cents a share on $14.6 billion in revenue for the quarter.
More than 330 million shares exchanged hands on the New York Stock Exchange, with decliners outpacing gainers by 18 to 11. On the Nasdaq, 500 million shares were traded, with decliners outpacing gainers 14 to 11.
On Wednesday, U.S. stocks rallied, boosted by strong gains in technology and energy shares as well as particularly light trading volume, with the Dow surging nearly 250 points. In contrast, the Dow tumbled 280 points Tuesday.
Waiting for Bernanke
Investors are awaiting Federal Reserve Chairman Ben Bernanke's address Friday to the annual Fed conference in Jackson Hole, Wyo.
"Bernanke will say what he's been saying -- that the economy is not heading for negative growth," Cardillo said. "He's going to obviously repeat what the FOMC statement indicated and his recent letter to Sen. Schumer said that if need be the Fed will cut interest rates. He'll probably highlight the fact that the Fed has taken action in terms of the credit crunch crisis by injecting liquidity and by cutting the discount rate."
"He's going to once again reiterate that the Fed's purpose is not to bail out sour speculative bets," Cardillo said.
Bernanke has reiterated that the Federal Reserve is closely monitoring markets and is ready to act if necessary. In a letter to Sen. Charles Schumer, D-N.Y., dated Aug. 27 and released Wednesay, Bernanke said Fannie Mae , Freddie Mac and the Federal Housing Administration should provide more assistance to subprime borrowers if they are able to.
"The market wants and expects a rate cut at the Sept. 18 meeting," Pado said. "What they want to hear is Bernanke make comments that clearly indicate that the Fed is going to act. Anything less than that is going to be negative for the market."
Stocks in focus
Shares of H&R Block Inc. fell 1.7% after the Kansas City, Mo., provider of tax-preparation services, reported a wider fiscal first-quarter loss and said it's discussing changes to its agreement to sell Option One Mortgage Corp. to the private-equity firm Cerberus Capital Management.
Shares of mortgage giant Freddie Mac tumbled 3.4% after the company said Thursday that its second quarter net income slipped 45% primarily due to a higher provision for credit losses and mark-to-market losses on credit-related items.
Mobile phone maker Motorola Inc. surged 3% after Lehman Brothers upgraded it to overweight from equal weight, saying it expects rising production in the third quarter to signal a recovery in the group's phone unit.
Shares of Tiffany & Co. rose 1%. Its fiscal second-quarter net income fell 10% to $37 million, or 26 cents a share, from $41.1 million, or 29 cents a share, a year earlier.
Economic data
First-time claims for state unemployment benefits crept up in the latest week, hitting a high last seen in mid-April and signaling some weakening in the nation's labor market.
Including a revision to the prior week's claims data, initial claims have now risen for five straight weeks, according to a report from the Labor Department issued Thursday. Claims for the week ended Aug. 25 rose by 9,000 to 334,000, the highest since April 14.
Other markets
The dollar traded mixed against its major rivals, but was unmoved by data show strong revised GDP and August employment data.
On the New York Mercantile Exchange, crude-oil and gold futures edged lower.
Treasurys were higher Thursday, sending yields lower, with yields on short-term bills remaining under pressure amid continued funding and credit concerns and speculation about Friday's speech by Bernanke.
By Polya Lesova