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Big stock indexes settle down, but small companies drop again

Big stock indexes settle down, but small companies drop again
The opening bell hangs above the trading floor at the New York Stock Exchange. (Mark Lennihan / Associated Press)

U.S. stocks wobbled Thursday as the markets turned fairly quiet after a very turbulent start to the week. Small-company shares dropped. High-dividend stocks, which investors favor when they want to reduce risk, rose.

Major stock indexes spent the day switching between small gains and losses after several days of much bigger moves. Clothing companies and other retailers fell, weighed down by weak earnings reports. A disappointing forecast from Delta hurt airlines. Makers of chemicals and basic materials also sank.

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Investors shifted some money into high-dividend stocks including utilities, household goods makers and real estate investment trusts.

Trading has been jagged over the last few months as investors worried about growing trade tensions and rising interest rates. Mona Mahajan, U.S. investment strategist for Allianz Global Investors, said traders aren't sure what strategy to use right now: Many recent market favorites, including Facebook, Amazon, Netflix and Google parent Alphabet, have taken a beating. Yet the global economy is still growing, making high-dividend, low-growth stocks such as utilities feel like a strange choice, she said.

“Over the last few weeks the mentality of ‘buy the dip’ has been replaced by something more like ‘sell the rally,’” she said. “There is a little bit of a void right now, and I think that is creating some of this shift out of the most crowded and most profitable trades, and this overall shift in market mentality.”

The European Central Bank said it will end its bond-buying stimulus program at the end of the year, but it trimmed its forecasts for growth across Europe. The bank isn't ending its stimulus program entirely: It will continue to invest money from maturing bonds and will take other steps to encourage banks to lend money.

The Standard & Poor’s 500 index slipped 0.53 of a point to 2,650.54. The Dow Jones industrial average rose 70.11 points, or 0.3%, to 24,597.38 as McDonald's and Procter & Gamble rose. The Nasdaq composite fell 27.98 points, or 0.4%, to 7,070.33.

The Russell 2000 index of smaller companies slid 22.62 points, or 1.6%, to 1,432.70. The Russell has fallen 17.7% since setting a record high in late August and is trading at its lowest level since September 2017.

Among other issues, that reflects investors' fears about slowing U.S. economic growth and rising interest rates. Smaller companies are more vulnerable in times of slower growth, and they tend to carry higher levels of debt than larger companies do. Higher interest rates make those debts more costly.

Shaky reports from retailers may have added to those worries Thursday as apparel company Tailored Brands and Oxford Industries, the parent of Tommy Bahama and Lilly Pulitzer, both cut their forecasts for the year. Tailored Brands nosedived 29.8% to $14.13, and Oxford sank 10.1% to $67.24. Guess slid 8.7% to $19.99. Smaller industrial and financial companies also dropped. Larger retailers struggled as well.

The European Central Bank has spent about $3 trillion on bonds since early 2015 in an effort to encourage growth in Europe's economy, and the end of its bond-buying program comes as credit conditions around the world are gradually getting tighter.

The Federal Reserve has been steadily raising interest rates for three years and is letting its balance sheet shrink, and the Bank of England is also backing away from the stimulus efforts it employed following the global financial crisis of 2007-09 and the Great Recession.

Those programs helped push global stock markets higher in recent years and their end might contribute to more volatility, but investors appeared to take the news in stride. Germany's DAX and the British FTSE 100 were little changed while the CAC 40 in France fell 0.3%.

Oil prices climbed following a Bloomberg News report that Saudi Arabia plans to cut exports to the United States. Meanwhile, the U.S. Senate passed a resolution recommending the United States end its assistance to Saudi Arabia for the war in Yemen and blamed Saudi Crown Prince Mohammed bin Salman for the killing of journalist Jamal Khashoggi. The resolution may not become law, but could increase U.S.-Saudi tensions.

General Electric climbed 7.3% to $7.20 after JPMorgan Chase analyst C. Stephen Tusa upgraded the stock to “neutral” from “underweight.” GE has fallen almost 60% this year after slashing its dividend, replacing its CEO and taking big charges tied to its power business and its insurance business. Analysts are concerned that several of its divisions are years away from being profitable.

Benchmark U.S. crude oil jumped 2.8% to $52.58 a barrel in New York. Brent crude, the international standard, rose 2.2% to $61.45 a barrel in London.

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Wholesale gasoline climbed 4.1% to $1.48 a gallon. Heating oil rose 1.4% to $1.88 a gallon. Natural gas fell 0.3% to $2.14 per 1,000 cubic feet.

Bond prices edged down. The yield on the 10-year Treasury note rose to 2.91% from 2.90%.

Gold slipped 0.2% to $1,247.40 an ounce. Silver was little changed at $14.89 an ounce. Copper stayed at $2.77 a pound.

The dollar rose to 113.60 yen from 113.22 yen. The euro stayed at $1.1367. The British pound rose to $1.2660 from $1.2634.

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