By Donna Kardos Yesalavich
U.S. stocks declined Thursday as investors grew increasingly
cautious ahead of the government's monthly payrolls report due
Friday morning.
The Dow Jones Industrial Average (DJI) was down 38 points in
recent trading. Investors have been jittery ahead of Friday's
employment report, which will be closely watched for signs of
whether the economic recovery can be sustained after other recent
data have sent conflicting messages.
Thursday, initial jobless claims unexpectedly rose, while
retailers reported mixed July same-store sales. and
Investors are also concerned about how the employment situation
could impact discussions at a Federal Reserve meeting next week. At
the meeting, Fed officials are expected to consider whether to use
cash the Fed receives when its mortgage-bond holdings mature to buy
mortgages or Treasury bonds, instead of allowing its portfolio to
shrink gradually, as it is expected to do in the months ahead. Any
change would signal deepening concern about the economic
outlook.
"Investors are cautious right now," said Peter Zuger, portfolio
manager at Touchstone Mid Cap Value Fund. "They're worried about
the economy going back into a recession mode. [The Fed] can't lower
rates anymore, so that lever is no longer available, that's why
possibly they'll do something with mortgages or expand the balance
sheet again and try to push more liquidity into the system."
The Dow dropped 38 points, or 0.4%, to 10642. The Nasdaq
Composite (RIXF) declined 0.6% to 2290, and the Standard &
Poor's 500-stock index (SPX) dropped 0.4% to 1123.
The financial sector led the decline, weighed down by a 5.3%
drop in Hartford Financial Services Group (HIG) and a 2.6% decline
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.
Investors sought safety in Treasurys and gold, which both rose.
The increase in Treasurys pushed the yield on the 10-year note
(UST10Y) down to 2.90%.
"People are really nervous" about Friday's jobs report, said
David Klaskin, chief investment officer at Oak Ridge Investments in
Chicago. He said the weak employment environment "spooks people
because it's impossible to see rosy projections taking place. The
employment data doesn't support that."
Volume was relatively weak, but in line with this week's lighter
trend. NYSE Composite volume was just over 2 billion shares around
1:30 p.m. EDT. Decliners outnumbered advanced by two to one.
The euro(CUR_EURUSD) fluctuated between small gains and losses
after European Central Bank President Jean-Claude Trichet said that
while the euro-zone economy is strengthening, current expansion
rates are unlikely to be sustained after the summer. The European
Central Bank kept its benchmark interest rate unchanged at 1%, as
widely expected.
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 0.8%,
Limited edged up 0.8% and Abercrombie climbed 1.4%, while J.C.
Penney dropped 7.7%, Aeropostale slipped 5.3% and Hot Topic shed
4.4%.