Waiting for Capex Comeback

On Thursday, the Census Bureau is expected to report that orders for durable goods --- big-ticket items such as airplanes, computers and washing machines -- increased 1% in December. That's down from a 4.4% gain in November, but excluding the volatile defense and aircraft industries, durable goods orders are seen rising 1.5% after a 2.1% drop the prior month.

Such an outcome might comfort the bullish view that capital spending by firms will come to the rescue of a slowing economy this year, lifting spending levels as consumers back off.

"If the economy is to rebound from weakness in the fourth quarter, we need to see an important rebound in capex spending," says Ethan Harris, chief economist at Lehman Brothers. "With a lag, the consumer is under pressure from energy prices and [interest] rates," which may hit growth in 2006.

Wall Street remains under the spell of high-profile disappointments in earnings and guidance over the past two weeks, perhaps foreshadowing such an economic slowdown. But on Wednesday, shares interrupted a two-day recovery from Friday's selloff, as a drop in crude prices weighed on energy shares.

The S&P 500, which has a heavy representation of energy shares, dropped 2.18 points, or 0.17%, to 1264.68, weighed down by energy shares. The sector fell along with crude oil, even as ConocoPhillips (COP Quote) and Amerada Hess (AHC Quote) posted strong earnings.

The Dow Jones Industrial Average finished down 2.48 points, or 0.02%, at 10,709.74. The blue-chip index was weighed down by McDonald's (MCD Quote), whose plans to cut company-owned restaurants by 20% disappointed Wall Street.

The Dow was also weighed down by Johnson & Johnson(JNJ Quote), which refused to sweeten its bid for Guidant, (GDT Quote), paving the way for a Boston Scientific's (BSX Quote) $27 billion offer to win the bidding war.

The Nasdaq Composite dropped 4.60 points, or 0.2%, to 2260.65.