Stocks Slump on Economic Worries

Jobless claims jumped, and the U.S. economy grew 1.9% last quarter. Exxon Mobil's record-breaking profit still disappointed investors.

by Ben Steverman

Watch the Video…

Stocks fell Thursday after mixed economic news and a jump in initial jobless claims that raised worries about Friday's crucial jobs report. Also, the world's largest company, Exxon Mobil (XOM), disappointed investors even as it posted the biggest quarterly profit ever by a U.S. corporation.

On Thursday, the Dow Jones industrial average dropped 205.67 points, or 1.78%, to 11,378.02. The broader S&P 500 fell 16.88 points, or 1.31%, to 1,267.38. The tech-heavy Nasdaq composite shed 4.17 points, or 0.18%, to 2,325.55.

"[T]here still isn't any evidence of the bears wrestling away control of the market from the bulls," says Standard & Poor's technical analyst Chris Burba. "We are probably seeing some profit taking ahead of the labor report tomorrow morning."

Raising concerns about the economy was a 44,000 spike in initial jobless claims, to 448,000 in the week ended July 26. There were reports, however, that the weekly numbers were distorted by an emergency unemployment program.

The U.S. economy grew at a 1.9% rate in the second quarter, according to the advance gross domestic product report. Previous quarters were revised lower, however, with the fourth quarter of 2007 showing a negative 0.2% decline and the first quarter lowered to weak 0.1% growth.

"While the data are better than expected and clearly contradict prior market concerns of a recession, there are still fears of slower growth heading into 2009," Action Economics says. However, John Ryding of RDQ Economics called it a "weak report." "With the decline in real GDP in the fourth quarter, GDP now has a more recessionary feel," he added.

Exxon Mobil Corp. posted earnings of $2.27 per share, vs. $1.83 a year ago, as revenue rose 40%. However, with oil at record prices during the second quarter, Wall Street analysts were expecting earnings of $2.52 per share.

Still, Exxon Mobil's net income of $11.68 billion was the largest quarterly profit by corporation in U.S. history. Hurting the bottom line was a rise in capital expenditures to $6.97 billion, from $5.04 billion. Also, the firm's oil production fell 8% from a year ago.

On the New York Stock Exchange, 19 stocks slipped in price for every 12 gaining ground. On the Nasdaq, the ratio was 15 to 13 negative.

The price of oil fell on Thursday. On the NYMEX, crude oil for September settled $2.69 lower at $124.08 per barrel.

In other economic news Thursday, the Chicago purchasing managers' index beat expectations, rising from 49.6 in July to 50.8 in July, the fifth consecutive increase for the regional measure. Also, employment costs increased 0.7% in the March to June period, which mostly matched economists' predictions.

Among stocks in the news, Visa (V) posted earnings of 50 cents per share on $1.6 billion in revenue. Payment volumes and processed transactions rose in all regions across the world.

MasterCard (MA) posted a $5.74 per share loss in the second quarter, vs. earnings of $1.85 a year ago, hurt by higher operating expenses and a $1 billion after-tax charge related to an antitrust litigation settlement with American Express (AXP). Revenue rose 25%.

General Motors (GM), Ford Motor Co. (F) and Chrysler LLC saw their credit ratings lowered by Standard & Poor's. S&P warned of "continued heavy losses and cash outflows" during 2009 for the three U.S. automakers.

Bristol-Myers Squibb (BMY) offered $60-per-share to buy ImClone (IMCL). At that price, the deal would cost about $4.5 billion.

Tyco International (TYC) reported earnings of 88 cents per share, vs. 51 cents a year ago, as revenue rose 11%. The firm raised its 2008 earnings guidance 8 to 12%.