Stocks withered in late trading Thursday to end solidly in the red. Worries about corporate profits ultimately overshadowed news that the economy grew more than expected in the fourth quarter of last year.
The Dow Jones industrial average was off 21.45 points, or 0.21%, to 10,106.13. The tech-heavy Nasdaq composite index was lower by 20.39 points, or 1.16%, to 1,731.49. The broader Standard & Poor's 500 index eased 3.15 points, or 0.28%, to 1,106.74.
Wall Street will get another full plate of economic news to digest on Friday, including the closely watched Institute of Supply Management reading on activity in the manufacturing sector in February. Economists are expecting a reading of 51.5, with any number above 50 indicating an expansion.
Also due out on Friday are reports on January personal income and construction spending, as well as the final reading of the University of Michigan's index of consumer sentiment for February. Standard & Poor's economic research unit MMS expects the final reading to be unchanged from the preliminary level of 90.9, which would represent a modest pullback from January's 93.0. Consumer sentiment is considered important as remarkably resilient consumer spending has helped prop up the sagging U.S. economy.
Few major companies are reporting earnings on Friday. Imax(IMAX), the maker of film projection and sound equipment, is due to release its results.
On Thursday, the biggest headline was news that the economy grew at a greater than expected rate in the last quarter of 2001. The report sparked a rally that eventually lost steam by the end of the session. The government said gross domestic product rose 1.4% in the fourth quarter instead of the 0.2% increase previously reported.
That isolates the drop in the 2001 third quarter, and leaves it the only negative quarter since the 1991 recession. In the wake of the report, MMS asked, "Recession? What recession?"
Also encouraging was news that the manufacturing sector also showed signs of improving. The Chicago Purchasing Manager's Index jumped to 53.1 in February from 45.1, which was higher than the 47 reading expected. MMS says this is the first time since July 2000 that the index has been above the 50 threshold, with any number over 50 indicating an expansion. The number could bode well for Friday's ISI manufacturing number.
Meanwhile, U.S. initial jobless claims rose 17,000 to 378,000, which was slightly higher than the 2,000 increase MMS had been expecting. MMS says the 4-week moving average declined to 373,200 from 376,200, while continued claims gained to 3.49 million from 3.42 million. But overall, MMS says the weekly labor data will play second fiddle to the big upward revision in fourth quarter GDP.
While the economic news was encouraging, some earnings announcements from the tech sector were not. Computer maker Gateway (GTW) said both revenue and profits would be lower than expected but that it expects to return to profitability in 2003.
And Genesis Microchip (GNSS) plunged after company management surprised investors by saying its just-completed acquisition of Sage Inc. would be dilutive to earnings, according to an SG Cowen analyst.
Riverstone Networks (RSTN), an Internet equipment maker, warned that its fourth quarter sales will be lower than expected and that it will cut its staff by an unspecified amount.
In other sectors, shares of clothing retailer Gap (GPS) were being watched after debt rating service Moody's on Wednesday cut Gap's senior unsecured debt rating to "Ba3," its third highest junk grade, from "Ba2." The company still managed to raise that day $1.2 billion by selling convertible bonds.
The airlines continue to disappoint. AMR Corp. (AMR), the parent of American Airlines, warned of a "sizable" first-quarter loss and added it fears it will post a full-year loss, blaming the impact on the September 11 terrorist attacks.
But discount retailer Target Corp. (TGT) posted 20% higher quarterly profits that were about in line with expectations thanks to higher sales.
And General Electric (GE), the diversified conglomerate, said it sees stronger than expected 2002 revenues.
Investors were digesting the economic reports a day after Federal Reserve Chairman Alan Greenspan said the economy is close to a turning point, but that "unique" risks may dampen the speed of the recovery. Speaking in his semi-annual testimony on monetary policy before Congress, Greenspan encouraged the market by failing to signal that policymakers will soon reverse some of the interest rate cuts implemented over 2001.
U.S. Treasuries ended lower after the release of the better than expected GDP growth figures and the stronger manufacturing activity reading.
European stock markets ended mixed. In London, the FTSE 100 index was down 77.40 points, or 1.49%, to 5,101 as Royal & Sun posted lower earnings, Bank of England policy makers debated economic outlook.
In Germany, the DAX index was up 78.86 points, or 1.59%, to 5,039.08 following a report that US Q4 GDP rose much more than expected, raising hopes for global economic recovery.
In France, the CAC 40 gained 38.28 points, or 0.87%, to 4,462.99 as the French January unemployment rate remained unchanged at 9% but number of unemployed rose 5,000.
Asian markets also ended mixed. In Japan, the Nikkei rose 14.74 points, or 0.14%, to 10,587.83 on on the back of continued technical buy-backs related to new restrictions on
short sales, though early strength faded in the afternoon on profit-taking.
In Hong Kong, the Hang Seng lost 166.16 points, or 1.56%, to 10,482.55.