By Donna Kardos Yesalavich
An unexpected increase in weekly jobless claims spooked
investors Thursday, sending stocks lower a day ahead of the
government's monthly payrolls report.
The Dow Jones Industrial Average (DJI) fell 50 points, wiping
out the measure's 44-point Wednesday climb that had come on
better-than-expected private-sector employment data. The
private-sector report had served as a source of relief for the
market ahead of the government's nonfarm payrolls due Friday, but
the concerns ramped back up following the disappointing weekly job
data reported Thursday.
Adding to the market's concerns, retailers' July sales came in
tepid thanks to hot weather and a cooler economy. Investors have
been jittery all week in the run-up to Friday's nonfarm payrolls
data, as mixed readings on the economy have left the market seeking
clearer signs of the economic recovery's sustainability.
"We're still in that recovery mode that is never linear and
never as smooth as you'd like it to be," said Michael Sansoterra,
portfolio manager of the Ridgeworth Large Cap Growth Fund. "People
are concerned about jobs first and foremost, and rightfully so.
It's difficult to get a meaningful [economic] expansion without job
growth."
The Dow dropped 50 points, or 0.5%, to 10630. Bank of America
Corp. (BAC) was the measure's worst performer with a 1.3% drop,
while Microsoft Corp. (MSFT) was also weak, off 1.2%, and Coca-Cola
Co. (KO) slipped 1.2%.
The Nasdaq Composite (RIXF) declined 0.8% to 2286, while the
Standard & Poor's 500-stock index (SPX) dropped 0.6% to
1121.
The Labor Department said Thursday the number of people applying
for initial unemployment benefits jumped 19,000 to 479,000 in the
latest week , to the highest level since early April.
The financial sector led the decline, weighed down by a 4.1%
drop in Hartford Financial Services Group (HIG) and a 3.6% slip in
Regions Financial Corp. (RF). Hartford swung to a second-quarter
profit, but lowered its 2010 target for operating earnings. Regions
Chief Executive Grayson Hall Jr. warned investors he expects a slow
economic recovery, with slow loan growth and a continued decline in
home prices.
Treasurys rose, pushing the yield on the 10-year note down to
2.92%. Meanwhile, the U.S. Dollar Index (DXY), reflecting the U.S.
currency against a basket of six others, edged up 0.1%, as
investors sought safety ahead of the Friday jobs report.
"There's enormous investor cognitive dissonance happening right
now," said Fred Fraenkel, vice chairman of Beacon Trust Co. "The
problems in the economy are real to them because they know somebody
who got a pay cut or got laid off or whose business isn't doing
well," yet earnings have been coming in stronger than expected.
Fraenkel added, "people look at good earnings and say 'I don't
care, I have to worry about whether it's all going to fall apart in
the next few months.'"
The euro slumped to $1.3148 as European Central Bank President
Jean-Claude Trichet said while the euro-zone economy is
strengthening, but current expansion rates are unlikely to be
sustained after the summer. He highlighted the risks posed by
renewed tensions in financial markets, rising prices for oil and
other commodities, and trade protectionism.
The European Central Bank kept its benchmark interest rate
unchanged at 1.00% Thursday, as widely expected, amid persisting
concerns about economic growth and sluggish bank lending.
Meanwhile, China's central bank said it needs to strengthen
management of inflation expectations as higher domestic labor costs
and ample global liquidity will likely add to inflation pressures,
while the country's economic expansion is expected to continue to
slow. The remarks made by the People's Bank of China, days before
Beijing announces its July inflation data, show the policy dilemma
the central bank faces amid a fragile global economic recovery and
various uncertainties in the economy.
Among retailers' same-store sales reported Thursday, companies
such as Macy's Inc. (M), Limited Brands (LTD) and Abercrombie &
Fitch (ANF) managed to exceed expectations, but J.C. Penney (JCP),
Aeropostale Inc. (ARO) and Hot Topic (HOTT) widely missed the mark
and provided discouraging earnings forecasts. Macy's rose 2%,
Limited edged up 0.5% and Abercrombie climbed 3%, while J.C. Penney
dropped 5.9%, Aeropostale slid 7% and Hot Topic shed 3.2%.
Crude-oil futures fell, as did gold futures.