Stocks finished Tuesday at session lows as investors frowned on the latest set of economic reports and lowered their equities exposure ahead of the Thanksgiving holiday.
Investors appeared displeased with reports on consumer confidence, revised third-quarter economic growth and new home sales. However, more than likely, traders reducing stock holdings before the long weekend was the bigger factor for Tuesday's selling. "I think a lot of portfolio managers are out tomorrow and will certainly be out Friday," says Michael Farr, president of Washington, D.C.-based investment advisory Farr Miller.
On Tuesday, the Dow Jones industrial average finished down 172.98 points, or 1.95%, to 8,676.42. The tech-heavy Nasdaq composite index fell 37.49 points, or 2.53%, to 1,444.41. The broader S&P 500-stock index fell 19.57 points, or 2.10%, to 913.31.
Stocks are open for trading Wednesday, but the markets will be closed all day Thursday and trading will wrap up early at 1:00 p.m. ET Friday. Between now and the end of the week, economic data could move stocks. "There's lots of little stuff," says Alan Hoffman, senior portfolio manager at Value Line Asset Management. The Federal Reserve's anecdotal survey of economic conditions, updates on consumer spending and October durable goods are due Wednesday. "All of that collectively can move markets one way or another," he says.
As for Tuesday's data, reports were essentially in line with expectations. Third-quarter gross domestic product (GDP) was higher than expected at 4%, which is better than the expected 3.6%, and up from the 3.1% preliminary figure. As expected, inventories accounted for much of the upward revision, says economic research outfit MMS International, and could have a negative impact on growth in the fourth quarter. MMS expects fourth-quarter GDP growth of 2%.
"I don't see the forces that are going to rob growth in the fourth quarter or first quarters of 2003," Hoffman says. "Even though unemployment has picked up, I still think the consumer is going to be the driving force behind this economy. We think 3% to 4% growth is in the bag, certainly into the first half of 2003."
Some are less sanguine about the GDP data. "It looks like corporate America may have jumped the gun," says Trip Jones, senior vice president of Fulcrum Global Partners. Inventories rose significantly while demand remains tepid. "The third quarter inventory build will clearly take production from the fourth quarter," Jones warns. He points out that business spending fell for an eighth straight quarter.
In other data Tuesday, consumer confidence in November rose to 84.1, up from a nine-year low of 79.6 in October. MMS expected consumer confidence to rebound to 85.0. New home sales for October fell 4.5%, to a 1.01 million pace. MMS had expected a fall of 4% to a 980,000 unit pace from the record 1.021 million pace in September. MMS notes that the housing market remains very strong, despite a decline in October.
Financial services stocks finished lower after news that regulators set fines for several investment banks accused of issuing research tainted by investment banking motivations. Citigroup (C) is expected to pay $500 million. Credit Suisse First Boston is expected to pay $250 million. Other firms such as Goldman Sachs and Thomas Weisel Partners will pay fines in the range of $50 million to $70 million.
Very few earnings reports are due Wednesday. H&R Block (HRB) reported earnings after the market close Tuesday that included charges of 14 cents per share to settle a lawsuit and 3 cents per share for a writedown on the value of its financial advising business. The tax-preparation specialist said it lost 5 cents per share, excluding charges, for the fiscal second quarter, which was in line with analysts' estimates.
U.S. Treasuries ended higher in price as stocks lost ground and investors placed safe-haven bets ahead of the Thanksgiving holiday. However, MMS notes that while stock weakness contributed to the rally in bonds, fundamentals
didn't really factor into either market. Rather, it was position squaring on the last full trading session for the month that fueled the price gains. Bond trading closes early on Wednesday atr 2:00 p.m. ET. The market is closed for the Thanksgiving holiday and Friday's session will also end early at 2:00 p.m. ET.
European markets finished lower. In London, the FTSE-100 index lost 51.20 points, or 1.24%, to 4,071.00. The Bank of England expressed surprise at global economic weakness. Meantime, Prime Minister Blair is locked in a battle with U.K. firefighters over pay.
Frankfurt's DAX was down 107.61 points, or 3.26%, to 3,191.63. The country's business climate index fell to 87.3 from 87.7 from October. Some believe the slide will pressure the European Central Bank to cut rates 50 basis points next week, while others say the drop in the index was not as bad as expected.
The Paris CAC 40 index finished down 80.49 points, or 2.44%, at 3,215.19.
In Asia, stocks ended lower. After five winning sessions on the heels of better market sentiment in the U.S., investors in Japan took profits. Japan's Nikkei 225 Index closed off 120.45 points, or 1.35%, to 8,823.99. In Hong Kong, the Hang Seng index shed 105.25 points, or 1.04%, 9,995.52.