Markets & Finance

Stocks End Mixed Ahead of Jobs Report


Traders anticipate another dismal showing for the labor market in Friday's report

U.S. stocks closed mixed Thursday, with the Dow industrials lagging broader-market indexes ahead of Friday's December U.S. nonfarm payrolls data. Trading was light but volatile ahead of the data, with the consensus forecast calling for a 490,000 decline in December after a 533,000 drop in November and a rise in the jobless rate to 6.9%.

Technology issues were among the better performers Thursday, led by Microsoft (MSFT) on the eve of a test rollout of Windows 7 software.

A mixed bag of retail sales reports sent Wal-Mart (WMT) lower and Sears Holdings (SHLD) higher.

Bonds were mixed. The dollar index was lower. Gold futures were up. Crude oil futures were lower.

On Thursday, the 30-stock Dow Jones industrial average finished lower by 27.24 points, or 0.31%, at 8,742.46. The broader S&P 500 index gained 3.08 points, or 0.34%, to 909.73. The tech-heavy Nasdaq composite index added 17.95 points, or 1.12%, to 1,617.01.

On the New York Stock Exchange, 19 stocks were higher in price for every 12 that fell. Nasdaq breadth was 17-10 positive.

Retailing giant Wal-Mart cut its fourth quarter earnings per share from continuing operations estimate from $1.03-$1.07 to 91 cents-94 cents. The company posted 1.2% higher December U.S. same-store sales (1.7% without fuel) and slightly lower total company sales. Wal-Mart noted that total sales in its international segment improved on a constant-currency basis. The company sees flat-to-2% higher January same-store sales.

Other retailers, including JC Penney (JCP), Gap Inc. (GPS), Nordstrom (JWN), Costco Wholesale (COST), Bed Bath & Beyond (BBBY), Target (TGT), Saks (SKS), American Eagle Outfitters (AEO), Abercrombie & Fitch (ANF), and Macy's (M), also reported weak December results or guided earnings lower. Macy's also said it will close 11 underperforming stores.

Bucking the downtrend: Sears Holdings (SHLD), which was sharply higher Thursday after posting 1.1% lower Kmart December same-store sales, 13% lower Sears domestic same-stores sales, and 7.3% lower December total same-store sales. The company noted that gross margin rates for the quarter-to-date period improved slightly from last year as higher margin rates at Kmart were somewhat offset by lower margin rates at Sears domestic stores. The company currently expects fourth-quarter EPS of $2.44-$3.09 (excluding items); it also expects to end fiscal 2009 with approximately $8.5 billion of domestic inventory, down from $9.1 billion last year.

Obama outlined his plans for the economic recovery Thursday in a speech in Virginia. Among the plans are a $1,000 tax cut for middle class families, modernizing 75% of Federal buildings, improving energy efficiency in 2 million homes, doubling alternative energy production in 3-years, extending jobless benefits and healthcare coverage, and creating a new "smart" electricity grid.

As reported on WSJ.com, Citigroup Inc. (C) signed onto a deal with top Democrats in the Senate to move forward with a measure that would allow judges to set new repayment terms for millions of mortgage holders who wind up in bankruptcy court, senators involved said. The accord on the Senate version of a bill allowing "cramdowns," when bankruptcy judges force lenders to modify mortgages, was negotiated by Sen. Dick Durbin, the Senate's second-ranking Democrat and the author of the Senate bill.

Freddie Mac said 30-year fixed-rate mortgage rates last week fell to a record low 5.01% from 5.10% a week ago and 5.87% a year ago. percent. The 15-year fixed fell to 4.62% from 4.83% last week and 5.43% a year ago. The 15-year fixed has not been lower since June 13, 2003, when it averaged 4.60%.

Initial claims for unemployment insurance fell 24,000 in the week ending Jan. 3, to 467,000. The level was less than expected by Wall Street, but the data remain highly distorted by the holidays, especially with New Year's Day falling on a Thursday. The number receiving benefits, which should be less affected by seasonal adjustment, rose another 101,000 to a new 26-year high of 4.611 million, holding the insured unemployment rate at 3.4%.

"Although the data for these two weeks are very distorted by seasonal factors, they clearly show continued weakness in the labor markets," says S&P senior economist Beth Ann Bovino.

U.S. consumer credit plunged $7.9 billion in November from a revised -$2.8 billion in October (from -$3.5 billion). That is a record drop and much worse than expectations for a $0.8 billion decline, notes Action Economics.

As expected, the Bank of England cut its repo rate another 50 basis points, to 1.5% -- the lowest level in its 315-year history -- as it attempts to ward off a prolonged recession. The Monetary Policy Committee cited a weakening economy and lower inflation. Markets had expected the 50 basis point cut, but there were some hopes for a larger cut after the Fed's dramatic move last month, so the action was a disappointment on net for markets. Further rate cuts are expected.

The European Commission said economic sentiment in the 15 countries using the euro in December plunged to 67.1 points -- the lowest since records began in 1990 -- from 74.9 in November. The data likely to reinforce expectations of a deep ECB interest rate cut on Jan. 15.

The German government is considering a €100 billion fund to help companies that are struggling to obtain credit, according to a draft drawn up by the Economy Ministry and obtained by Bloomberg. The draft says that "the central problem is that banks are shying away from financing companies". French President Nicolas Sarkozy said the German plans are an "excellent idea" and that France will follow Germany's lead.

The New York Times reports China has bought more than $1 trillion of American debt, but as the global downturn has intensified, Beijing is starting to keep more of its money at home, a move that could have painful effects for American borrowers.

Bond-market guru Bill Gross of Pimco released his January investment outlook and concludes "There is legitimate concern as to the ultimate destination and outcome of our 'bailout nation.'"

"Realistically, quantitative easing, a two-trillion-dollar expansion of the Feds balance sheet, and the near certainty of future budget deficits approaching 6-7% of GDP should alert bond investors to once again become vigilant as was the case in the 1980s and 90s," wrote Gross. "Vigilantes we should be, but that is a battle to be fought in the Treasury market where low yields offer little reward and increasing risk."

Among other stocks in the news Thursday, Shaw Group (SGR) posted a first-quarter loss per share of 48 cents, vs. a 3 cents EPS one year earlier, as significant non-cash forex losses (due to appreciation of the Japanese yen against the U.S. dollar) at its Westinghouse segment offset an 11% revenue rise.

Manitowoc Co. (MTW) estimates that 2008 adjusted EPS will be within the low end of the previous forecast of $3.15-$3.25, which includes results of its recently divested Marine segment, but excludes special items and the impact of the Enodis acquisition. The company sees $1.35-$1.60 2009 EPS (before special items), which is seen much lower than consensus forecasts.

Eli Lilly & Co. (LLY) said that at the request of FDA, it is preparing proposed Risk Evaluation and Mitigation Strategy (REMS) after having received a complete response letter from the FDA for olanzapine long-acting injection for acute and maintenance treatment of schizophrenia in adults. Lilly said is continuing to work with the FDA on the new drug application (NDA), and will submit REMS in near future. The FDA does not require any additional clinical trials for continued review of the NDA.

According to a Reuters story, Verizon Communications (VZ) picked Microsoft to provide Internet search services for cell phones, in what is seen as a blow to rivals Google (GOOG) and Yahoo (YHOO).

Thinkorswim Group (SWIM) agreed to be acquired by TD Ameritrade (AMTD) in a cash and stock deal valued at about $606 million.


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