Stocks Dip on Economic Data, Lower Earnings
Stocks eased Thursday, halting a three-day winning streak, as bullishness was damped by lower-than-expected earnings from Amazon.com and by a report showing a slowdown in worker productivity growth.
In other markets, the dollar rallied after the European Central Bank held its key short-term interest rate steady, widening the gap between European rates and U.S. rates.
Treasury bond yields edged up on concerns about the productivity data and ahead of today’s government report on January employment trends.
On Wall Street, the Dow Jones industrial average slipped 3.69 points, or less than 0.1%, to 10,593.10, after gaining 169 points in the previous three sessions.
The Standard & Poor’s 500 index lost 3.30 points, or 0.3%, to 1,189.89.
The heaviest selling was in the technology sector. The Nasdaq composite index sank 17.42 points, or 0.8%, to 2,057.64, hurt by declines in Internet- related issues.
Falling stocks outnumbered winners by a narrow margin on the New York Stock Exchange and by 3 to 2 on Nasdaq.
The Labor Department said Thursday that productivity, or output per worker, rose at an annual rate of 0.8% in the last three months of 2004. It was the smallest quarterly increase in almost three years.
The report caused concern because weaker productivity gains could be a drag on corporate profit growth, analysts said.
What’s more, the Federal Reserve has cited productivity advances as one reason why inflation pressures have been relatively muted -- and why the central bank has been able to raise short-term interest rates at a “measured” pace.
The Fed lifted its key rate to 2.5% on Wednesday, from 2.25%, the sixth increase since June.
“Low productivity could shift the balance toward inflation,” said William Fitzgerald, who oversees $56 billion as head of fixed income at Nuveen Investments in Chicago.
Bond investors were jittery Thursday. The yield on the 10-year Treasury note ended at 4.16%, up from 4.14% on Wednesday. The two-year T-note ended at 3.33%, up from 3.29%.
Some investors were concerned that the government today could report a big gain in January employment. That also could put more pressure on the Fed to raise rates at a faster clip.
Analysts on average forecast that the economy produced a net 190,000 non-farm jobs last month.
In currency trading, the dollar benefited from higher U.S. interest rates. The euro fell to $1.297 from $1.304 on Wednesday. The dollar rose to 104.49 yen from 103.75.
With the Fed’s key rate at 2.5%, that is a half-point above the European Central Bank’s benchmark rate of 2%.
“We could be moving into a world where rate differentials are finally a support for the dollar,” said Lara Rhame, a currency strategist in New York at Credit Suisse First Boston.
European Central Bank President Jean-Claude Trichet said there was “no significant evidence of underlying domestic inflationary pressure” in the euro-zone countries. Analysts said that suggested the ECB would not be raising rates soon.
The stronger dollar hurt gold. Near-term gold futures in New York sank $4.50 to $416.60 an ounce, a three-month low.
Crude oil prices dipped for a third day, losing 24 cents to $46.45 a barrel in New York.
Among the day’s market highlights:
* Amazon.com tumbled $6.13 to $35.75. The online retailer late Wednesday reported earnings that fell short of expectations.
Among other Internet issues, EBay slid $1.58 to $77.22, Blue Nile fell 76 cents to $28.79, and Yahoo eased 36 cents to $35.18. But Google hit another record closing high, up $4.90 to $210.86.
* Many conventional retailers rose on reports of strong January sales. Nordstrom gained 92 cents to $50.63, J.C. Penney jumped $1.61 to $43.86, and Abercrombie & Fitch shot up $5.16 to $55.
* Stocks rising on earnings reports included engineering giant Fluor, up $2.95 to $56.93; software firm Mercury Interactive, up $4.74 to $48.94; and home builder Standard Pacific, up $3.70 to $71.10.
But appliance maker Whirlpool slid $2.92 to $65.35 after reporting lower earnings, which were hurt in part by higher steel prices, the company said.
* Starbucks dropped $4.43 to $49.57. The No. 1 U.S. chain of coffee shops said January revenue at stores open at least a year rose 7%, missing many analysts’ estimates. Smith Barney analyst Mark Kalinowski cut the stock’s rating to “hold” from “buy.”
* Utility stocks attracted buyers, pushing the Dow Jones utility index up 0.77 point, or 0.2%, to 348.64, its highest since 2001.
TXU gained $1.48 to $73.48, AES was up 46 cents to $14.94, and Public Service Enterprise added 29 cents to $53.72.
