Dow Stumbles; Bargain Hunting Boosts Nasdaq
Wall Street stumbled through a choppy session Thursday and ended mixed, with blue chips giving up a modest gain and tech stocks holding on to their own moderate advance.
Investors clearly were ambivalent as they analyzed two economic reports. A Labor Department report of a jump in unemployment insurance claims fed early selling, but investors took some heart from a Commerce Department report on the gross domestic product.
The Dow Jones industrial average closed down 23.10 points, or 0.3%, at 8,670.99, after gaining as much as 51 points and falling as much as 136 during the day. That came after a 1.5% decline Wednesday.
The broader market was mixed. The Nasdaq composite index rose 21.39 points, or 1.6%, to 1,335.77 after having fallen 2.5% Wednesday. The Standard & Poor’s 500 index dipped less than a point to 917.80.
Winners led losers by about 9 to 7 on both Nasdaq and the New York Stock Exchange. Volume was light ahead of the three-day holiday weekend. U.S. markets will be closed Monday for Labor Day.
The Commerce Department said the economy as measured by the gross domestic product grew in the second quarter at an annual rate of 1.1%. The reading was unchanged from its initial estimate a month ago. But new claims for unemployment insurance rose last week to the highest level since July 6. Economists had expected claims to decline.
Analysts said investors, despite initial concerns about the GDP number, later seemed to be somewhat encouraged that the figure was not revised downward. That would have raised fears of a possible “double-dip” recession.
Tech shares, meanwhile, got a boost on a bout of bargain hunting.
“It’s more bottom-fishing more than anything else,” said Robert Froehlich, investment strategist for Deutsche Asset Management in Chicago. “Short-sellers are covering their positions, giving some strength and stability to the market.”
In a short sale, a trader borrows stock and sells it on the expectation that the share price will drop. If the bet is correct the trader can buy new shares at lower prices later to replace the loaned stock.
But if the stock rises instead of falls, the trader may scramble to buy back the stock earlier than planned to close out the bet. With the market’s rally since late July, more short sellers may be rushing to buy shares, helping to stoke the advance, analysts say.
Since its July 23 closing low of 7,702.34, the Dow is up about 1,000 points.
“What’s going on this week is some normal profit taking,” said Alfred E. Goldman, market strategist for A.G. Edwards & Sons. “The big picture is a market that is bottoming, but it doesn’t happen overnight.”
Losers Thursday included companies with downgraded shares or disappointing earnings outlooks. General Electric fell 95 cents to $30.35 after Lehman Bros. cut its 2003 earnings estimates on the company.
Also, Kroger, parent of the Ralphs supermarket chain, dropped $1.16 to $18.34 after J.P. Morgan Chase downgraded its shares to “market perform” from “buy,” saying Wal-Mart and other rivals are stealing market share.
Shoe retailer Footstar fell $2.10 to $11.45 after cutting its third-quarter outlook. That dragged down shares of athletic shoe makers such as Reebok, which fell $3.07 to $24.63, and Nike, which lost $1.55 to $42.98.
Helping to boost tech stocks was Yahoo, which rose $1.12 to $10.25, after Merrill Lynch raised its rating to “neutral” from “sell.”
Retailer Chico’s rose $2.10 to $17.18 after meeting fiscal second-quarter earnings expectations.
Yields on Treasury securities fell for a fourth day in five after the jobless claims report bolstered expectations that a faltering economic rebound would prompt the Federal Reserve to leave interest rates at a 41-year low until next year. The yield on the benchmark 10-year Treasury note slipped to 4.14% from 4.21% on Wednesday.
“If people aren’t going to be employed, I don’t see how you can get much of a recovery,” said Peter Cordrey, fixed-income manager at Prudential Asset Management.
Market Roundup, C6-7
