News Article
BusinessWeek.com
June 22, 2006
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Stocks Fall after Soft Economic Data

May leading indicators dropped 0.6%, meeting Street expectations. Weekly jobless claims rose as projected

Stocks finished lower Thursday following a report indicating a slowing economy. Trading was cautious ahead of next week's Federal Reserve meeting, says Standard & Poor's Equity Research. The Fed is widely expected to raise the key federal funds rate to 5.25%.

On Thursday, the Dow Jones industrial average fell 60.35 points, or 0.54%, to 11,019.11, led downward by McDonald's (MCD ) despite a 4% jump by General Motors (GM ). The broader Standard & Poor's 500 index shed 6.6 points, or 0.53%, to 1,245.6. The tech-heavy Nasdaq composite was down 18.22 points, or 0.85%, to 2,122.98.

Volume was solidly below 20-day averages. NYSE breadth was decidedly negative, with 22 issues declining for every 11 advancing. Nasdaq breadth was 18-12 negative.

Technical measures are sending mixed signals about the market's direction, some analysts say. It's unclear whether Wednesday's surge "was the summer rally" or was merely the beginning of one, says Roger Volz, chief technical analyst at Swiss American Securities.

Market players were digesting another light plate of economic data Thursday. The index of leading economic indicators fell 0.6% to 137.9 in May, as projected. Initial jobless claims rose 11,000 to 308,000 in the week ended June 17, in line with expectations. Friday's docket holds May durable goods order, expected to rise 0.5%.

In corporate news, Boston Scientific (BSX ) and Johnson & Johnson (JNJ) were lower after a report that some cardiac centers are reducing use of drug-coated stents, which both companies supply, due to concerns over blood clots. Separately, a heart device made by Boston Scientific-owned Guidant reportedly may fail about 10 times more often than forecast, according to a regulatory analysis released in a Texas lawsuit.

Among other stocks in focus, Adobe (ADBE ) was higher and Google (GOOG) was slightly lower on news the multimedia software maker agreed to distribute Google's search software with Adobe's Shockwave media player.

Home furnishings retailer Bed Bath & Beyond (BBBY ) was lower after a Jefferies & Co. analyst said the company projected earnings below Wall Street forecasts.

Shares in Jabil Circuits (JBL) fell after the computer-equipment maker lowered its third-quarter earnings forecast. The company also received a subpoena from the U.S. Attorney's office for information on stock-option grants and was notified by the SEC of an informal inquiry.

On the brokerage front, General Mills (GIS ) was higher after Merrill Lynch upgraded the packaged-food maker from neutral to buy.

M&A talk continued to swirl. Spanish-language broadcaster Univision (UVN ) was down after private equity firms Kohlberg Kravis Roberts and Blackstone Group dropped out of a planned bid for the company.

Meanwhile, department-store operator Federated (FD ) was higher after selling its Lord & Taylor unit for $1.2 billion to a property development group.

In earnings news, software bellwether Oracle (ORCL ) was set to announce quarterly results after the close.

In the energy markets Thursday, August West Texas Intermediate crude oil futures closed up 51 cents at $70.84 a barrel. Rising gasoline prices drove other energy futures higher, says Action Economics.

European markets finished higher. In London, the Financial Times-Stock Exchange 100 index rose 19.1 points, or 0.34%, to 5,684.1. Germany's DAX index was up 30.01 points, or 0.55%, to 5,533.42. In Paris, the CAC 40 index gained 28.56 points, or 0.6%, to 4,803.29.

Asian markets finished higher. Japan's Nikkei 225 index rallied 491.43 points, or 3.36%, to 15,135.69. In Hong Kong, the Hang Seng index climbed 167.34 points, or 1.07%, to 15,826.7. Korea's Kospi index added 11.64 points, or 0.95%, to 1,238.83.

Treasury Market

Treasuries were lower amid strength in foreign stock markets, Fed policy speculation and news that Atlanta Fed President Jack Guynn is retiring. The 10-year note fell in price to 99-15/32 for a yield of 5.19%, while the 30-year bond dropped to 89-04/32 for a yield of 5.23%. The Treasury curve remained inverted, with the yield on the 2-year note topping the 10-year by 4 basis points. An inverted yield curve is taken by some forecasters as a sign of impending recession.