Stock Market

Return to Article

Dow Edges Ahead, but Nasdaq Eases

Mike Taylor

Blue-chip stocks closed higher Thursday, overcoming a surge in crude oil, drab economic data and a weakening dollar, but the Nasdaq trailed the other major averages and finished the session slightly negative.

The Dow Jones Industrial Average climbed 12.78 points, or 0.1%, to 11,430.21, and the S&P 500 was up 3.18 points, or 0.3%, at 1277.72. The Nasdaq lost 8.7 points, or 0.4%, to 2380.38.

With the new day came renewed worry over the fate of the battered financials. After falling as much as 17% right out of the gate, Fannie Mae (FNM) reversed course and rose 10% to $4.85. Freddie Mac (FRE) pared a 22% early drop to a 2.8% decline at $3.18. Lehman Brothers (LEH) shares were down 0.1% to $13.72.

Following Goldman Sachs' slashed earnings forecast for five major financial firms just a day ago, Citigroup lowered its estimates on Goldman Sachs (GS), Lehman and Morgan Stanley (MS). Citi predicted further writedowns for the big Wall Street firms as they continue to navigate the credit crisis. Goldman slipped 1.2% to $156.42, and Morgan Stanley fell 0.9% to $37.06.

Bill Stone, chief investment strategist for PNC Wealth Management, said rumors that Lehman is attempting to sell some of its businesses and difficulties assessing the value of Fannie and Freddie's equity pressured the financials slightly. However, a spike in oil prices, a weaker dollar and unimpressive economic data probably provided more pressure on stocks, he said.

In the realm of commodities, oil prices were one of the stories of the day, as near-term futures bolted up $5.62 to settle at $121.18 a barrel. Gold jumped $22.70 to finish at $839.

As oil climbed, the dollar was getting dominated by the euro, yen and pound, and Treasury prices were ticking lower. The 10-year note was down 7/32 in price to yield 3.83%, and the 30-year was off by 8/32, yielding 4.46%.

Turning to the day's economic data, the Labor Department's initial jobless claims for the week ended Aug. 16 came in at 432,000, below economists' expectations for a read of 438,000. The previous week's unemployment tally was revised to 450,000 from 445,000. Stone said that although the jobless number came in better than expected, it still reveals weakness in the economy.

The Philadelphia Federal Reserve manufacturing index increased to negative 12.7 in August, ahead of analysts' estimates for a read of minus 13.4 and up from a negative 16.3 in July.

"We know the economy's getting weak and with some respects getting weaker," said Stone. He said he sees GDP bottoming as it hits zero growth in the first quarter of 2009. "We do see the future looking brighter. It's just not right now."

The Conference Board's leading indicators report showed a 0.7% decrease for July, a decline that was greater than expected.

As for corporate earnings, several consumer-oriented businesses announced financial results before the open. Heinz (HNZ) announced rising profits and trumped expectations, thanks to sales growth both domestically and overseas. Heinz shares ended the day up 0.5% at $51.99. Fast-food restaurant Burger King (BKC) posted a 42% year-over-year increase in profits, beating estimates. The stock faced selling pressure, however, on declining profit margins. Shares stumbled 7.1% to $25.50.

Meanwhile, video-games retailer GameStop (GME) said its earnings increased substantially to beat Wall Street's bottom-line estimates. Its margins, however, disappointed Wall Street, and the stock tumbled early and finished down fractionally at $43.48.

Barnes & Noble (BKS), which reported that quarterly profits were down from a year ago, also saw shares heading downward. Shares lost 4.2% at $24.67.

Away from earnings, The Wall Street Journal reported that Kohl's (KSS) CEO Larry Montgomery will hand over head-management duties to President Kevin Mansell. Montgomery will stay on as chairman of the company, the report said. Shares ended up 0.4% at $47.93.

The Journal also said that the Federal Reserve contacted Credit Suisse (CS) last month to discuss rumors that it was planning to cut off credit from Lehman Brothers. Credit Suisse said that the rumor was untrue, the report said. Lehman shares have lately been hammered over uncertainties about its liquidity levels.

Overseas exchanges, including the Dax in Frankfurt, the Nikkei in Japan and the Hang Seng in Hong Kong, mostly traded lower.