Stocks End Lower Before Jobs Report

Tech stocks were weak, while worries about third quarter profits surfaced as analysts slashed forecasts for earnings on the S&P 500

by David Bogoslaw

Major U.S. stock indexes closed lower Wednesday, with selling accelerating on the tripping of futures-related selling programs amid increased speculation that Friday's nonfarm payrolls report will show solid improvement from August, S&P MarketScope said. A positive payrolls report would make it less likely that the Federal Reserve would lower interest rates again.

On Wednesday, the Dow Jones industrial average lost its grip on the 14,000 threshold, finishing 79.26 points, or 0.56%, lower at 13,968.05. The broader S&P 500 index ended down 7.04 points, or 0.46%, at 1,539.59. The tech-heavy Nasdaq index slid 17.68 points, or 0.64%, to 2,729.43.

Equities got off to a weak start Wednesday on news that Morgan Stanley (MS) had taken a negative view of chip maker Intel Corp. (INTC) and on weaker quarterly results from Micron Technology (MU). Then some positive private payrolls and service sector reports may have further deflated hopes of further Fed action to pump up the economy.

Another negative weighing on investor sentiment was analysts' dramatically cutting their forecast for third-quarter earnings growth across the Standard & Poor's 500 Index to 2.0% from 3.9%. According to CNBC, the halving of estimates resulted solely from Citigroup's (C) warning on Monday of a 60% drop in its quarterly profit, reflecting the company's large weighting in the index.

On the New York Stock Exchange, for every 21 stocks trading lower, 12 showed gains. Nasdaq breadth was 18-11 negative amid losses by Intel and Broadcom (BRCM) in moderate volume.

Homebuilder and retailer stocks continued to track higher, reportedly on buying by hedge funds managers hoping to catch up on performance by loading up on sharply discounted names and planning to take profits at yearend.

"Whenever we come to the conclusion of one of these bear raids, people are forced to scramble to catch up performance-wise. [The market] went through the same thing each of the last four years," said Brian Reynolds, a chief market strategist at M.S. Howells & Co.

Following the lead of Citigroup and UBS AG (UBS), Deutsche Bank (DB) said it will take charges of around $3.1 billion in the third quarter, sending its investment banking unit into the red to the tune of $352.3 million to $493.2 million, while it still sees overall net profit for the period rising. The German bank's earnings are expected to exceed 1.97 billion in the third quarter, vs. $1.75 billion a year ago, due to gains on property disposals and tax credits.

In the wake of Citigroup's pre-emptive writedown of its assets on Monday, which counter-intuitively sent the Dow rallying to a new high, economists and other market observers continue to debate whether the financial services sector has truly put the worst of the subprime meltdown-cum-credit-crisis behind it, as Citigroup suggested by citing signs of normalizing earnings in the fourth quarter.

Activity in the corporate bond market is making it clear that the credit crisis is windown down and coming to an end, said Reynolds at M.S. Howells.

"Money is flooding into the corporate bond market," he said. "It’s just a matter of time before the [leveraged] buyouts and stock buybacks start back up again."

The thawing of the credit freeze means there's no need for further easing by the Fed on interest rates, he added.