Stocks slide after two-day rally
Wall Street’s two-day rally ended Wednesday as investors awaited the Labor Department’s jobs report and registered their disapproval of Yahoo’s announcement of its biggest management shake-up in more than five years.
Investors pulled back to position themselves ahead of the government’s November payroll report due Friday and Tuesday’s Federal Reserve meeting. A series of recent economic reports have led to speculation that policymakers might cut rates after more than two years of hikes.
Technology shares remained under pressure after Yahoo announced a makeover to help boost the Internet portal’s competitiveness against Google. Shares of business software maker Novell fell after the company released a disappointing forecast.
The Dow Jones industrial average fell 22.35 points, or 0.2%, to 12,309.25 after rising a total of 137 points on Monday and Tuesday.
Broader stock indicators also fell. The Standard & Poor’s 500 index dropped 1.86 points, or 0.1%, to 1,412.90, and the Nasdaq composite index declined 6.52 points, or 0.3%, to 2,445.86.
The Russell 2,000 index of smaller companies fell 1.48 points, or 0.2%, to 795.94. The index hit an all-time high Tuesday.
U.S. Treasury yields rose after private reports suggested that November job growth would top Wall Street estimates and hinted at some stabilization in the closely watched housing market.
ADP Employer Services said 158,000 private-sector jobs were added to nonfarm payrolls last month, well above forecasts of a gain of 110,000 in Friday’s Labor Department report, which includes government workers.
ADP has diverged from payrolls before, but the forecast of a possible surprise to the upside caught bond investors off guard. Benchmark 10-year Treasury note yields rose to 4.49%, from 4.44% on Tuesday.
“Bond yields rose because traders were not convinced that they had the risk-reward balance right going into the key economic reports at the end of this week and, ultimately, for the policy statement from the Federal Reserve’s meeting next week,” said Chris Rupkey, vice president and senior financial economist at Bank of Tokyo/Mitsubishi.
Wall Street largely brushed off the employment indicator, however.
“You’re seeing a lot of portfolio adjustments that will go right through to the Fed meeting, and some year-end window dressing will carry us through the end of the month,” said Scott Fullman, director of investment strategy for Hapoalim Securities. “The jobs report on Friday is obviously going to have an impact, but everyone wants to know what the Fed is thinking.”
Stocks are still up on a week boosted by a string of corporate takeover deals and indications that inflation remains in check. For the year, the Dow is up 14.9%, the Nasdaq has advanced 10.9%, and the S&P; 500 is up 13.2%.
Oil prices fluctuated after the Energy Information Administration reported that crude, gasoline and distillate inventories all fell last week. The drop in oil inventories came as a surprise for analysts, sending crude oil futures down 24 cents to $62.19 a barrel on the New York Mercantile Exchange.
As for stocks, many on Wall Street believe they will continue to march higher. The Fed, which has kept rates at 5.25% for the last two meetings, probably won’t give any hints about their direction.
“I have a feeling with the market being viewed as ‘glass half full,’ almost anything they say will lead to a drift higher for the stock market for the rest of the year,” said Matt Kelmon, portfolio manager of the Kelmoore Strategy Funds. “The people hoping for a hint at an ease will be disappointed, and even a knee-jerk sell-off will be followed by some end-of-the-year buying.”
In other market highlights:
* Yahoo, the world’s second-largest search engine, behind Google, announced an overhaul late Tuesday to help give the company a clearer direction and streamline operations. Chief Financial Officer Susan Decker was put in charge of ad sales in a move that may signal her anointment as the successor to the company’s top job.
The stock, which has struggled this year while Google flourished, fell 57 cents to $26.86. Google rose $1.71 to $488.71.
* Novell lost ground after the business-software developer posted disappointing quarterly results because of weak sales of older products. The company also said it expected to take restructuring charges in 2007, and its shares lost 34 cents, or 5.4%, to $5.99.
* Oracle tumbled 98 cents, or 5.2%, to $17.88 after Lehman Bros. urged investors to take profits before the company reports second-quarter results Dec. 18. The report said the technology company might post disappointing numbers from database licensing.
* General Motors slumped 77 cents to $29.37, for the worst drop in the Dow average, after saying it would cut output at three plants that produce large sport-utility vehicles. Ford Motor fell 32 cents, or 4.2%, to $7.36 after the company increased the amount of money it planned to raise. The company seeks a revolving credit line and a convertible note sale to now raise $22 billion to $23 billion.
* Merck maintained its forecast for flat earnings in 2006 and slightly higher results next year. But shares tumbled 72 cents to $44.67, as Wall Street had hoped for higher projections.