Stocks finished down Thursday with investors concerned about the sluggish employment picture and the increasing likelihood of a U.S. conflict with Iraq.
The Dow Jones Industrial average was down 82.61 points, or 1%, to 8,364.74. The broader Standard & Poor's 500-stock index was down 6.89 points, or 0.77%, to 884.23. The tech-laden Nasdaq composite index was down 7.29 points, or 0.54%, to 1,354.22.
While equities have floundered over the previous two sessions, prices for both gold and crude oil have surged on fears the U.S. is closer to war with Iraq and oil supply disruptions from the Venezuela strike. Defense stocks, meanwhile, have risen the past two days. Thursday afternoon, Secretary of State Colin Powell said Iraq's declaration to the U.N. of weapons it has in its possession is incomplete -- and therefore in violation of a U.N. Security Council resolution. "The world is still waiting for Iraq to comply with its obligations. The world will not wait forever," Powell said.
Merrill Lynch Thursday issued a report on the 2003 U.S. economy, saying next year will bring a "sheepish recovery" with real gross domestic product advancing 2.6% next year. Other experts have said they expect GDP growth of more than 3%. Says Dan Genter, CEO of RNC Genter Capital Management in Los Angeles: "I think we're looking at GDP growth of just over 3% this year, and 3.5% next year." Genter adds that with productivity now over 5%, and no sign of inflation, the economy is growing at a reasonable pace. As for corporate earnings, he thinks the worst of the news "is probably behind us."
On Friday, investors will get the revised GDP figure for the third quarter. But no major companies will release earnings.
In the financial sector Thursday, investment banks Lehman Bros. (LEH) and Goldman Sachs (GS) each had rising earnings, following Bear Stearns' (BSC) strong profits announcement Wednesday. But rival Morgan Stanley's (MWD) profits plunged.
Dole Food (DOL) Chief Executive Officer David Murdock will take the world's largest fruit-and-vegetable producer private with an increased offer that values the company at $2.5 billion.
And for the second time in less than a week, a chemical company CEO has exited. Dow Chemical's (DOW) board replaced its CEO last Friday. Now Monsanto (MON) CEO Hendrik Verfaillie has resigned as CEO and will be replaced on an interim basis by board chairman Frank Atlee.
Among the major movers, Rite Aid (RAD) narrowed its losses in the third quarter, sending stock up 17%. Barnes & Noble (BKS), however, plummeted 15% after the company said its holiday sales will not be as strong as expected.
In the defense and industrial sectors, General Dynamics (GD) agreed to buy General Motors' (GM) defense business for $1.1 billion in cash, making it the leading U.S. supplier of armored military vehicles. And Honeywell (HON) said it will have a fourth-quarter loss of about $1.80 a share because of $1.9 billion in costs to settle asbestos lawsuits, write down the value of assets and cut jobs.
Carnival Corp.'s (CCL) fourth-quarter profit rose 65 percent as the largest cruise line operator attracted more travelers and raised prices for the first time in more than a year. Bookings have slowed after an outbreak of a shipboard virus caused illnesses and cruise cancellations.
In economic news, the Conference Board's leading indicator index for November jumped 0.7%, fueled by an upward moving stock market and a stabilization of consumer confidence. The consensus estimates called for a 0.5% to 0.6% increase in the index after it was flat in October. It was the largest rise since December, 2001.
The index jumped in November on the strength of the stock market, the real money supply, interest rate spreads, initial jobless claims and consumer sentiment. This month's increase represents the largest gain since December.
While the improvement in the leading indicators slightly exceeded expectations, it is in part due to a reduction in initial jobless claims that occurred at the end of November. Since then, there has been a marked softening in the labor market, which may suggest that the outlook implied by the leading indicators is overly optimistic, Economy.com suggests.
Indeed, initial state unemployment claims have turned ugly, says John Lonski, managing director for Moody's. Initial jobless claims decreased by 11,000 for the week ended Dec. 14, to 433,000 from 444,000 the previous week. But with claims far higher than 400,000 every week in December, the situation could have an effect on consumer spending. "Investors will almost certainly worry that the trend toward a softening labor market, which is being suggested by these numbers, may be confirmed once more reliable data become available," says Economy.com.
Separately, the Philadelphia Fed's index of business conditions rose to 7.2 in December from 6.1 in the previous month, well above expectations of a 5.0 result. But some components of the report showed softness: new orders eased to 9.3 from 11, priced paid gained to 15.1 from 13, and employment plunged to -5.7 from -0.2.
Treasuries surged dramatically higher in price Thursday as investors sought the relative safety of government debt as first U.N. Chief Inspector Hans Blix, then Secretary of State Powell, expressed skepticism over Iraq's willingness to comply with U.N. resolution 1441. Traders will be watching Federal Reserve Chairman Alan Greenspan's speech Thursday night before the Economics Club of New York.
In European markets, London's FTSE 100 index ended the day down 67 points, or 1.72%, to 3,841.4. In Germany, Frankfurt's DAX Index fell 28.46 points, or 0.94% to 2,994.23. The Paris CAC 40 fell 23.18 points, or 0.75%, to 3,054.21. According to Economy.com, manufacturing in the euro zone remained weak in October. Industrial production contracted by 0.2% in October after it was flat in the previous month. The weak global economy and weak conditions in the euro zone itself, including structural problems, were to blame.
In Asia, stocks finished higher. In Japan, as the Nikkei 225 Index gained 43.56 points, or 0.52%, to 8,387. In Hong Kong, the Hang Seng index climbed 9.21 points, or 0.10%, to 9,557.