Tuesday, October 31, 2006

Stocks Drift after Soft Economic Data

News Article
October 31, 2006

Business Week Online

Stocks Drift after Soft Economic Data

Consumer confidence and Chicago PMI both posted declines in October. Procter & Gamble's third-quarter profit topped analyst expectations

Stocks finished narrowly mixed Tuesday, though off their weakest levels, as consumer confidence and Chicago-area manufacturing activity each registered a downtick for the month. Month-end portfolio adjustments helped support the broader market, says Standard & Poor's Equity Research

On Tuesday, the Dow Jones industrial average slipped 5.77 points, or 0.05%, to 12,080.73. The broader Standard & Poor's 500 index nudged higher 0.01 points, or less than 0.01%, to 1,377.94. The tech-heavy Nasdaq composite rose 2.94 points, or 0.12%, to 2,366.71. NYSE breadth was slightly positive, with 17 issues advancing for every 16 declining. Nasdaq breadth was 16-14 negative. 

Lackluster economic reports were in focus Tuesday. Consumer confidence slipped to 105.4 in October, after jumping to an upwardly revised 105.9 in September. Separately, the Chicago PMI regional manufacturing index dropped to 53.5 in October, from 62.1 in September Meanwhile, the employment cost index rose 1% in the third quarter, its fastest pace in two years, after a 0.9% second-quarter gain. 

The employment figures suggest a tight labor market, some analysts say. "Wage increases are beginning to show a pattern of steady gains, with the year-over-year increase in wages rising for four straight quarters to 3.2% in the third quarter from 2.3% a year ago," says John Ryding, chief U.S. economist at Bear Stearns. 

Looking ahead, Wednesday's economic calendar holds the Institute for Supply Management's index of manufacturing activity. Investors will also be sifting through data on September construction spending and October vehicle sales. 

In earnings news Tuesday, Dow component Procter & Gamble (PG) was lower despite reporting a better-than-expected 33% gain in third-quarter profit and raising its full-year earnings outlook. 

Photographic film icon Eastman Kodak (EK) posted a $37 million loss in the third quarter for its eighth consecutive quarterly loss.

United Airlines parent UAL (UAUA) reported back-to-back quarterly profits for the first time in more than six years. 

Companies set to report earnings Wednesday include Time Warner (TWX), among others. 

On the M&A front, Merck (MRK) agreed to buy biotechnology outfit Sirna Therapeutics (RNAI) for $1.1 billion, or $13 a share. Internet search company Google (GOOG) acquired JotSpot, a California startup that develops online collaboration tools called wikis. 

Elsewhere, Boeing (BA) was modestly lower despite news the aerospace company has secured 100 plane orders in China so far this year. 

The board of IBM (IBM) approved an additional $4 billion in stock buybacks, on top of $2.4 billion for share repurchase left over from a prior authorization. 

Telecommunications company Verizon (VZ) was lower after UBS lowered its recommendation on the stock from buy to neutral. 

In the energy markets, December West Texas Intermediate crude futures rose 37 cents to $58.73 a barrel. Prices fell early amid reports of increased Nigerian output, but buyers stepped in around the $57 level, with short-covering buoying crude into the close, says Action Economics. 

European markets finished mixed, paring earlier gains after the U.S. consumer confidence report. In London, the FTSE-100 index nudged higher 2.3 points, or 0.04%, to 6,129.1. Germany's DAX index added 10.73 points, or 0.17%, to 6,268.92. In Paris, the CAC 40 index fel 13.5 points, or 0.25%, to 5,348.73. 

Asian markets ended slightly higher following a steep decline in oil prices. In Japan, the Nikkei 225 index gained 47.54 points, or 0.29%, to 16,399.39. In Hong Kong, the Hang Seng index advanced 26.8 points, or 0.15%, to 18,324.35. Korea's Kospi index was up 8.44 points, or 0.62%, to 1,364.55. 

Treasury Market

Treasury yields extended their decline after the weak Chicago PMI number and the mild consumer confidence data. The 10-year note rose in price to 102-03/32 for a yield of 4.61%, while the 30-year bond advanced to 96-16/32 for a yield of 4.72%.

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