Update from 4:04 p.m. EST
A mini-rally that brought stocks to new 2003 highs Wednesday evaporated in late afternoon trading. Early gains were driven by strong economic news and positive analyst comments, but technical pressures sent the
back into the red.
Dow Jones Industrial Average
rose 19.78 points, or 0.2%, to 9873.42, the
dipped 1.89 points, or 0.2%, to 1064.73, and the
fell 19.82 points, or 1%, to 1960.25.
Volume on the New York Stock Exchange was 1.42 billion shares, while 2.24 billion shares changed hands on the Nasdaq. Decliners vs. advancers were close to even on the NYSE and nearly 2 to 1 on the Nasdaq.
Earlier in the session, the Nasdaq briefly traded above 2000 for the first time in almost two years, while the Dow came within 58 points of 10,000, a level not seen since May 31, 2002.
"People saw the Nasdaq trading above 2000, and just took money off the table," said Sean Martin, head trader at A. Gary Shilling. "I think we would have needed a major event to justify aggressive buying at those levels. Maybe Friday's employment report will help push stocks to new highs."
Third-quarter productivity growth was revised up to 9.4% from the preliminary estimate of 8.1%, slightly above the consensus estimate of 9.2%. Productivity improved from 7% in the second quarter, and continues to underpin the recovery by helping keep inflation low and the
At the same time, however, strong productivity gains have allowed companies to produce more with fewer workers, which helps explain the stubbornly high unemployment rate.
The Institute for Supply Management's Services index for November declined to 60.1, from 64.7 last month. Economists had expected a marginal decline to 64. Its employment index, however, rose to 54.9 from 52.9.
The dollar was weaker vs. the Japanese yen, extending its decline to uncharted territory against the euro; one euro will currently fetch $1.2106.
The 10-year Treasury fell 4/32, its yield rising to 4.4%.
Despite today's turnaround, stocks are mostly higher this week, as investors anticipate that persistently strong economic figures will boost the corporate bottom line heading into the fourth quarter and beyond.
Equity investors have a nice track record of late. "The stock market did a good job anticipating robust economic growth in the third quarter, and the earnings improvements that followed," said David Briggs, head stock trader at Federated Investors. But is it a one-year wonder?
"Not yet," said Briggs. "The word 'bubble' is creeping into a lot of conversations, but I think the market is only a little bit higher on expectations for even better 2004 earnings."
Not everyone is so confident.
"People are pricing in the fact that earnings are going to keep getting better and the economy will continue to grow at a robust pace," said Tom Schrader, a trader at Legg Mason. "I believe the market is setting itself up for a big disappointment."
The latest S&P 500 price-to-earnings estimate was approximately 26 at the end of last week, according to
That's based on a 12-month, trailing earnings-per-share formula. While the current estimate is likely to be higher given this week's move, it is nowhere near the P/E ratios seen in March 2002 before the steep decline that followed the 1990s bubble. At that point the S&P 500 trailing P/E was above 60. In addition, the current P/E remains below the 29 level seen right before equities began their 2003 surge in March. So from a basic valuation perspective, it could be argued that stocks are a little more attractive now than they were at this year's lows.
"Stocks are a little ahead of themselves, but not a lot," said Briggs.
In earnings-related news,
confirmed that its fourth-quarter earnings are expected to be in line with analysts' guidance of 13 cents a share. The company expects to earn 11 cents to 15 cents a share. Shares of Motorola fell 38 cents, or 2.7%, at $13.67.
said it sees earnings of $3.11 to $3.17 a share in the full-year 2004 and predicted 2003 earnings at the low end of $2.90 to $2.95 a share. The consensus calls for $2.94 a share in 2003 and $3.16 a share in 2004. Merck shares improved $1.50, or 3.6%, to $43.63.
In research action, Goldman Sachs said
pension fund is in better financial condition and could boost earnings. GM shares surged $2.26, or 5.2%, to $45.54, leading the Dow higher.
to buy from neutral. Oracle shares improved 50 cents, or 4%, to $12.90, and PeopleSoft shares rose 41 cents, or 1.9%, to $21.49.
was upgraded at J.P. Morgan to overweight from neutral. Shares of the company improved 6 cents, or 0.2%, at $31.62.
Bank of America raised its price target on
to $39 a share from $34 a share, and increased its fourth-quarter earnings estimate to 31 cents a share from 29 cents a share. The company's shares declined 51 cents, or 1.5%, to $33.34.
Markets overseas finished mixed, with London's FTSE 100 up 0.3% to 4392 and Germany's Xetra DAX higher by 1.7% to 3876. In Asia, Hong Kong's Hang Seng fell 0.4% to 12,361.2 and Japan's Nikkei fell 0.8% to 10,326.
Tomorrow, initial jobless claims for the week ending Nov. 29 are expected to rise slightly to 355,000, and try to make it nine consecutive weeks under the 400,000 level necessary for labor market improvement