Sellers Crash Bulls' Party

The three broad stock averages simultaneously close lower for the first time in 2006.
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Updated from 4:16 p.m. EST

Stocks closed to the downside Thursday after facing selling pressure throughout the day, and the broad averages simultaneously finished with losses for the first time this year.

The

Dow Jones Industrial Average

shed 81.08 points, or 0.73%, to 10,962.36, ending a three-day stint above 11,000. The

S&P 500

slipped 8.12 points, or 0.63%, to 1286.06, and the

Nasdaq Composite

was down 14.67 points, or 0.63%, to 2316.69.

For the Nasdaq, the selloff marked its initial losing session since the calendar turned to the new year. Both the Dow and the S&P 500 lost ground for only the second time in 2006, but their earlier declines were by less than a point.

"This is just normal profit-taking after one heck of a rally," said Al Goldman, chief market strategist with A.G. Edwards. "The advance came in the face of mixed news, including the sharp rise in oil. Despite all this we still rallied, and now we're in a very normal pause to refresh. The mood is still that the glass is half-full."

General Motors

(GM) - Get Report

was the largest decliner on the Dow, losing 3.7%.

DuPont

(DD) - Get Report

,

Alcoa

(AA) - Get Report

and

Wal-Mart

(WMT) - Get Report

were all off more than 1.6%.

The 10-year Treasury was up 5/32 in price to yield 4.41%, 3 basis points above the two-year note, while the dollar rose against the yen and euro.

"If the rally can be sustained, it will have to come from earnings," said Marc Pado, market strategist with Cantor Fitzgerald. "So far, the reports have not been good, but the big names like DuPont, Alcoa and

Phelps Dodge

(PD) - Get Report

are all in the same group of basic materials and have been impacted by the hurricanes."

All three companies have reported earnings travails in recent days.

"What we need is to hear from companies that take the pulse of the consumer," Pado added. "Tech will be one of those groups. Retailers will be another."

About 1.70 billion shares changed hands on the

New York Stock Exchange

, with decliners beating advancers by a 5-to-3 margin. Volume on the Nasdaq was 2.01 billion, and three stocks fell for every two that rose.

"The market is just correcting what we've done over the last few sessions," said Paul Nolte, director of investments with Hinsdale Associates. "The Dow couldn't hold the 11,000, and volume hasn't picked up today. If the volume does pick up, the selloff would be more pronounced. That will be the key to figuring if the market will sustain a rally."

The Dow began Thursday up 326 points, or 3%, for the year, while the S&P 500 had risen 46 points, or 3.7%, and the Nasdaq had gained 126 points, or 5.7%.

Oil futures were well above $64 a barrel for most of Thursday's session before finishing flat as traders eyed political developments in Iran, where the government has cleared the way for a resumption of uranium enrichment as a precursor to restarting its nuclear program. February crude finished the session unchanged at $63.94 a barrel in Nymex floor trading.

The Energy Department said natural gas inventories fell 20 billion cubic feet last week, matching estimates. Natural gas futures finished down 30 cents to $8.94 per million British thermal units.

A slew of economic data hit the tape Thursday. The Commerce Department said the trade deficit narrowed to $64.2 billion in November. Economists expected the deficit to shrink to $66.0 billion from a revised $68.1 billion in October.

The Labor Department said its import price index fell for a second consecutive month in December, down 0.2% after a revised 1.8% decline in November. Economists expected a 0.1% rise. Excluding fuel, import prices were up 0.2%. Export prices rose 0.1%.

Also, the Labor Department said first-time unemployment claims rose by 17,000 to 309,000 last week. The less volatile four-week moving average fell 5,500 to 311,500. Also, the Treasury Department the December U.S. budget came in at a lower-than-expected $11 billion.

On Friday, the producer price index and retail sales for December, along with business inventories data for November, are expected.

"Investors are turning their attention from an end to

Federal Reserve

rate hikes to fourth-quarter earnings, the first-quarter outlook and the release of economic data," said Paul Mendelsohn, chief investment strategist with Windham Financial. "Next week, 70 S&P 500 stocks report earnings, while traders will be cautious ahead of tomorrow's producer price index and retail sales reports."

Odds of the Fed continuing its rate hike campaign at its next meeting on Jan. 31 currently stand at 96%, according to fed funds futures. For the March 28 meeting, odds are 64%, up from 44% just after the release of the latest FOMC minutes, which suggested the Fed was going to stop hikes soon. Fed funds are suggesting rates will go no higher than 4.75% in 2006.

In corporate news, medical-device maker

Guidant

(GDT)

is back in the arms of

Johnson & Johnson

(JNJ) - Get Report

, with its board recommending shareholders accept a takeover offer worth $23.2 billion, or $68.06 a share. Guidant lost 4 cents, or 0.1%, to $70.40.

Rival suitor

Boston Scientific

(BSX) - Get Report

says it's still in the hunt for Guidant. It previously offered $25 billion, or $72 a share, for the company and vowed to "vigorously pursue" the transaction. Boston Scientific was off 36 cents, or 1.4%, to close at $25.05.

Laurels continue to be laid on

Apple

(AAPL) - Get Report

after its blowout business update on Tuesday. Bear Stearns upgraded the stock to outperform and set a $105 price target, about 25% above Wednesday's $83.90 close. Apple rose 39 cents, or 0.5%, to $84.29.

Mylan Labs

(MYL) - Get Report

rose Thursday on an agreement to license its experimental blood processing drug nebivolol to

Forest Labs

(FRX)

. Mylan will collect $75 million upfront and stands to see future royalties. Mylan was up 34 cents, or 1.7%, to finish at $20.84.

Research In Motion

(RIMM)

announced support Thursday for two

Google

(GOOG) - Get Report

protocols, the Google Talk instant message program and Google Local, a maps-and-directions service. Both will be available on BlackBerry. RIM tacked on $1.28, or 1.8%, to $69.90.

According to a report in the

New York Post

on Thursday, the

Securities and Exchange Commission

has begun an informal investigation into allegations that

Home Depot

(HD) - Get Report

inflated profits by overcharging suppliers for damaged merchandise. Home Depot denies the charge but said it will cooperate with the investigation. Shares were off 40 cents, or 0.9%, to close at $42.55.

In other ratings moves, Prudential upgraded

AT&T

(T) - Get Report

to overweight from neutral, assigning a stock price target of $27. The move comes in anticipation of the company's analyst day, scheduled for the end of January. AT&T dipped 11 cents, or 0.4%, to $24.96.

Dow components

Coca-Cola

(KO) - Get Report

and

J.P. Morgan

(JPM) - Get Report

finished lower after both faced downgrades before the bell. Goldman Sachs downgraded Coca-Cola to in-line from outperform, while Piper Jaffrey cut J.P. Morgan to market perform from outperform.

Coca-Cola was lower by 23 cents, or 0.6%, to $41.44. J.P. Morgan lost 75 cents, or 1.8%, to $39.95.

The airline sector faced pressure Thursday after

Southwest Airlines

(LUV) - Get Report

was downgraded to hold at Citigroup and

US Airways

(LCC)

was cut to peer perform at Bear Stearns. Southwest fell 39 cents, or 2.3%, to $16.36. US Airways was up 18 cents, or 0.5%, to close at $34.98.

The Amex Airline index lost 1.9%. The biggest decliner on the index was

Alaska Air

(ALK) - Get Report

, sliding 3.5%.

Overseas markets were mostly higher, with London's FTSE 100 unchanged 5733 and Germany's Xetra DAX up 0.2% to 5542. In Asia, Japan's Nikkei rose 0.5% overnight to 16,445, while Hong Kong's Hang Seng added 0.4% to 15,719.