Thursday, November 2, 2006

Stocks Slip After Mixed Retail Sales

News Article
November 2, 2006

BusinessWeek Logo

Stocks Slip After Mixed Retail Sales

The Dow flirted with the 12,000 mark after discount retailers posted soft October sales and Wal-Mart warned about November sales

Stocks finished modestly lower Thursday, as the Dow posted its fifth straight daily decline amid lackluster economic data and a retail heavyweight's flat November sales forecast. Traders were also looking ahead to Friday's nonfarm payrolls figures, says Standard & Poor's Equity Research.

On Thursday, the Dow Jones industrial average fell 12.48 points, or 0.1%, to 12,018.54. The broader Standard & Poor's 500 index slipped 0.47 points, or 0.03%, to 1,367.34. The tech-heavy Nasdaq composite edged down 0.33 points, or 0.01%, to 2,334.02.

NYSE breadth was slightly negative, with 18 issues declining for every 15 advancing. Nasdaq breadth was 18-13 negative.

Investors were weighing disappointing economic reports Thursday. Nonfarm productivity growth was flat in the third quarter, from a downwardly revised 1.2% in the second quarter. Unit labor costs rose 3.8%, though that's down from an upwardly revised 5.4% second-quarter gain.

The productivity report could trouble Federal Reserve policymakers, some analysts say. "Some commentators and Fed officials have tried to explain away sharply higher unit labor costs as the result of one-time factors such as stock option expensing at the start of the year," says John Ryding, chief U.S. economist at Bear Stearns. "Sustained, elevated unit labor cost increases (unit labor costs have risen at a 6.0% annualized rate this year) might make it difficult to argue that there is not a more persistent factor at work."

Meanwhile, jobless claims climbed 18,000 to 327,000 in the week ended Oct. 28, from an upwardly revised 309,000 the week before. Factory orders rose 2.1% in September, below expectations.

Highlighting Friday's docket is a report on October nonfarm payrolls. Also on tap is the October reading of the Institute for Supply Management's non-manufacturing index.

On the company side, retailers were posting mixed sales results for October. Discount retailers Costco (COST) and Target (TGT) were among companies missing analyst estimates, while rival Wal-Mart (WMT) warned it expects flat November sales. The disappointing numbers raise worries about the holiday season, says S&P.

Department stores posted stronger October sales. Retailers beating expectations included Federated (FD) and J.C. Penney (JCP).

In earnings news, International Paper (IP) was lower after the company reported a drop in third-quarter profit.

Broadcaster CBS (CBS) posted a sharply lower third-quarter profit but a 26% jump in operating earnings.

Elsewhere, Microsoft (MSFT) was reportedly entering into an agreement with Novell (NOVL) that would allow Linux software to work with Microsoft's Windows software.

In analyst calls, Intel (INTC) was lower after Merrill Lynch downgraded shares of the chipmaker from buy to neutral.

Computer maker Dell (DELL) was higher after Goldman Sachs raised its rating on the stock from sell to neutral.

In the energy markets, December West Texas Intermediate crude futures fell 83 cents to $57.88 a barrel amid warm weather forecasts and Kuwait's caution on production cuts.

European markets finished lower. In London, the FTSE-100 index edged down 0.3 points, or less than 0.01%, to 6,149.3. Germany's DAX index slid 68.57 points, or 1.09%, to 6,223.33. In Paris, the CAC 40 index dropped 60.79 points, or 1.13%, to 5,310.07.

Asian markets ended mixed. In Japan, the Nikkei 225 index lost 25.24 points, or 0.15%, to 16,350.02. In Hong Kong, the Hang Seng index rallied 261.13 points, or 1.42%, to 18,714.78. Korea's Kospi index gained 9.38 points, or 0.68%, to 1,383.73.

Treasury Market
Treasury yields rebounded after the soft productivity data and gain in unit labor costs. The 10-year note fell in price to 102-06/32 for a yield of 4.6%, while the 30-year bond dropped to 96-19/32 for a yield of 4.71%.

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