Stocks ended lower Thursday after struggling for direction ahead of Friday's employment report. Investors received positive economic data in the factory and services sectors, but were also handed a host of negative news on the earnings front Thursday.
The Dow Jones industrial average fell 37.80 points, or 0.49%, to 7,717.81. The tech-heavy Nasdaq composite index was down 21.74 points, or 1.83%, to 1,165.56, driven down by earnings warnings in the tech sector. And the broader Standard & Poor's 500-stock index lost 8.90 points, or 1.07%, to 819.01, led by declines in semiconductor and banking stocks.
Friday's main event is the employment report, which comes out before the market opens. Economic researcher MMS International sees September nonfarm payrolls rising by 60,000, while the unemployment rate may increase to 5.9% from the surprise drop to 5.7% in August. The data should suggest that labor market demand remains lackluster as profit pressures and an uncertain business outlook leave corporations in a cautious hiring mode, MMS says.
Thursday's economic news was mostly upbeat. Factory orders were unchanged in August from the revised 4.4% gain in July (up 4.7% previously), topping Wall Street expectations of a 0.3% decline. Inventories were unchanged as well, following a 0.1% decline. Shipments were down 0.6% after a 1.6% drop in July.
The ISM services index, a measure of economic activity outside the manufacturing sector, also came in better than expected. The index recovered to 53.9 in September from 50.9 in August, and close to July levels of 53.1. New orders gained to 52.3 from 51.6, prices eased to 52.5 from 53.5, employment slipped to 46.6 from 47.3, and inventories slid to 44.5 from 46.0.
Also, weekly jobless claims rose 5,000 to 417,000, which was weaker than estimates but still reflected a sluggish labor market.
But earnings warnings weighed on market sentiment. After the market close Wednesday, Advanced Micro Devices (AMD) warned that it expects a third-quarter loss per share on about $500 million sales, vs. its earlier projection that sales would improve modestly from $600 million in the second quarter. S&P and SoundView cut earnings estimates for the chipmaker on the news.
Tech companies Jack Henry (JKHY) and Micrel (MCRL) were also lower after warning that third-quarter results would be lower than anticipated.
Elsewhere, bank stocks fell after Bank of New York (BK) said it will increase its third-quarter loan loss provision amid deterioration in telecom loans and in the capital markets. And Transkaryotic (TKTX) plunged after the FDA says it will delay a decision to approve the company's Replagal therapy to the first half of 2003.
On the bright side, Dow component DuPont (DD) raised its third-quarter earnings outlook thanks to a lower income tax provision and improving business conditions.
Treasuries meandered in narrow range trading ahead of the key payrolls data Friday. Current conditions remain very unsettled, as was the case prior to the last jobs report. A rise in the unemployment rate will likely steal the spotlight from the payroll gains to support Treasuries, predicts MMS.
European markets ended lower. In London, the Financial Times-Stock Exchange 100 index fell 24.90 points, or 0.64%, to 3,880.30. In France, the CAC 40 lost 80 points, or 2.7%, to 2,861. And in Germany, the DAX Index declined 113.44 points, or 3.88%, to 2,813.30.
Asian markets finished lower. The Nikkei fell 112.90 points, or 1.25%, to close at 8,936.43, as declines in bank shares drove the index below 9,000 for the first time since 1983. Stocks deepened losses in Tokyo Thursday on worsening sentiment towards the global economy and corporate earnings. Corporate liquidation worries also weighed down the market, as the government may force stricter criteria for non-performing loans.
In Hong Kong, the market declined 125.03 points, or 1.37%, to 8,984.32.