The major indexes have been rising as optimism for economic recovery grows. However, profit-taking took hold Thursday. The Dow Jones industrial average lost 81.94 points, or 0.93%, at 8,711.18. The broader Standard & Poor's 500 shed 3.60 points, or 0.38%, at 949.62.
The technology-laced Nasdaq composite index gained 11.71 points, or 0.75%, at 1,574.95. Shares in semiconductor, wireless, software and large-cap technology issues led gains.
No major earnings reports are scheduled for Friday.
However, investors will get more economic data. The final read on consumer sentiment for May from the University of Michigan's consumer sentiment will provide another look at how consumers are holding up. Economic research outfit MMS expects the index to come in at 91.5, which would be a retreat from the preliminary level of 93.2 but would still be up from April's 86.0.
Another key report due Friday is the May update on Chicago PMI. MMS expects the regional manufacturing gauge to rise to 49.0 from April's level of 47.6. Weakness in recent reports such like durable orders, industrial production and factory employment do not bode especially well for this measure. "The strength in this report will help set expectations for Monday's release of the nationally-based ISM report," says MMS.
On Thursday, U.S. first quarter gross domestic product was revised higher to a 1.9% rate of growth from the originally reported 1.6% gain. Growth in real final sales was up 2.4%, from an earlier read of 2.1%, while growth in business fixed investment was revised down to a decline of 4.8% from a decline of 4.2%.
Recovery prospects look promising, figures UBW Warburg chief U.S. economist Maury Harris. He sees the economy to grow at a rate of 2.5% in the second-quarter, with a surge to 4% the second half as "recovery is fueled by faded geopolitical concerns, lower interest rates, lower oil prices and fiscal stimulus from lower taxes and higher defense spending." However, the recent market rally "is already foreshadowing this revival," he says.
On the labor front, initial jobless claims fell last week, as economists predicted. Still, the number of people who continued to receive benefits rose to an 18-month high, signaling a continued tight job market. Harris says that productivity growth continues to be "brisk" and the dismal labor market data may be understating the pace of recovery.
Meantime, weakness in the dollar does seem to have the usual detrimental effects of currency decline. So far, the U.S. economy appears to be getting a boost to corporate earnings from the favorable currency translation, but inflation doesn't seem to be a problem, says Rick MacDonald, economist at MMS. "This bodes well for the U.S. outlook."
On Thursday, home builder Hovnanian Enterprises (HOV
) said fiscal second-quarter net earnings more than doubled, on acquisitions and low mortgage rates.
In telecom news, Lucent Technologies (LU
) declined after it said it plans to sell about $1.3 billion of convertible senior bonds to take advantage of lower borrowing costs.
Analysts at Lehman Brothers reportedly cut their 2003 earnings expectations for Motorola (MOT
) on concerns over the impact of the SARS on the China market.
U.S Treasuries finished higher in price Thursday amid the latest economic data, which were in line with expectations. "This morning's data releases scarcely caused a stir and prices are still holding up," says MMS. Investor interest in an upcoming 2-year note auctions appears solid.
In other data, personal income and consumption are due Friday. MMS expects little change from April. These data will be overlooked as the market awaits Michigan sentiment and Chicago PMI, MMS says.
European markets finished mostly higher. In London, the Financial Times-Stock Exchange 100 added 11.70 points, or 0.29%, to 4,083.60, as investors are pondering reports of rising mortgage lending London. In Germany, the DAX Index fell 12.83 points, or 0.44%, to 2,906.71. In France, the CAC 40 gained 19.57 points, or 0.66%, to 2,969.18.
In Asia, markets ended mixed. Japan's Nikkei index extended gains by 141.18 points, or 1.71%, to 8,375.36, amid a rally of the U.S. dollar against the yen. Sony shares rose after the electronics giant presented a game machine that combines a TV tuner, DVD recorder and game player in a single box.
In Hong Kong, the Hang Seng index slipped 2.07 points, or 0.02%, to 9,508.55.