Updated from 11:38 a.m. EDTStocks in the U.S. edged off their opening highs but were staying positive Thursday, as a decline in third-quarter GDP was narrower than expected and companies issued a heap of quarterly earnings statements. The Dow Jones Industrial Average was up 52 points to 9043, and the S&P 500 added 8.5 points to 939. The Nasdaq jumped 14 points to 1672. Ahead of Thursday's session, the Department of Commerce reported that GDP contracted 0.3% in the third quarter, providing a strong indication that the U.S. has entered a recession. The decline was narrower than expected by economists but down from growth of 2.8% in the second quarter. Separately, the Department of Labor's initial jobless claims for the week ended Oct. 25 registered at 479,000, above analyst estimates and level with the previous week. "If you'd been wondering if there was recession, this kind of brings it home," said Phil Dow, director of equity strategy at RBC Dain Rauscher. He said that a recession normally has been ongoing by the time the government says there is one, and that he thinks going forward the U.S. will see a two-quarter recession followed by modest growth. "We shouldn't look for perfection in these estimates," said Dow. "It's pretty easy to get in a black mood and think that this is going to extend forever." As for the GDP number's impact on stocks, "Normally you have the stock market recover even when it's cloudy," said Dow, and he said the market feels like it's close to an interesting bottom in pricing.
Steven Wieting, economist at Citigroup, wrote in an email that consumer spending for the third quarter dropped 3.1%, the biggest drop since 1980. Declines in production and employment, coupled with tight credit markets and wealth destruction indicate that GDP may decline more than 3% for the fourth quarter, he wrote. However, "Assuming some easing in extraordinarily tight credit markets, we may currently be experiencing the worst pace of contraction in domestic economic activity overall," he wrote. On the other hand, Bill Fleckenstein, hedge fund manager for Fleckenstein Capital, said he expects to see a sustained contraction, because many companies have said that business has dropped off significantly. "The psychological sea change that's taking place isn't being captured by these numbers. ... We are going to have a brutal recession. That cannot be changed." In terms of government intervention, "From a balance-sheet standpoint, the country's kind of broke, said Fleckenstein. He said that continued efforts to prop up housing prices is a failing undertaking, and that, given a limited set of options, the government would be better served funding infrastructure and energy projects to alleviate unemployment and reinvigorate the economy. Additional government efforts to bolster the economy looked to be in the works, as Bloomberg reported that the Treasury Department and the Federal Deposit Insurance Corp. may devote $500 billion to help avert home foreclosures. Meanwhile, in the wake of the Federal Reserve's 50-basis-point rate cut that brought its target interest rate to 1% Wednesday, debt markets were relaxing. Three-month dollar Libor was down 23 basis points to 3.19%, and overnight Libor declined 41 basis points to 0.73%.
American Express ( AXP) signaled it was preparing for a tough year ahead, as the company announced it would cut jobs and reduce compensation in an effort to save $1.8 billion in costs for 2009. Analyst actions further illustrated uncertainty about the future of the banking sector. Merrill Lynch reduced 2009 earnings estimates for Goldman Sachs ( GS) and Morgan Stanley ( MS) further below consensus, while raising estimates for Citigroup ( C) and JPMorgan Chase ( JPM) further above consensus. A smattering of corporate earnings were once again occupying traders' attention. Following Wednesday's close, insurance company MetLife ( MET) announced a decline in quarterly profit. Fellow insurer Prudential ( PRU) swung to a loss. Exchange operator CME Group ( CME) said profit declined year over year. Investors heard from a variety of energy companies. Integrated oil firm and Dow component Exxon Mobil ( XOM) posted earnings of $14.8 billion, the largest quarterly profit ever reported by a U.S. company. Royal Dutch Shell ( RDS.A) reported income that rose 71% year over year on higher oil prices. Murphy Oil ( MUR), on the other hand, reported a substantial increase in third-quarter earnings but lowered guidance for the fourth quarter. Oil and natural gas firm Apache ( APA) reported a profit for the third quarter that increased 94% from the year-ago period. Ahead of Thursday's trading, telecommunications equipment maker Alcatel-Lucent ( ALU) reported a loss on falling revenue and charges stemming from the merger between Alcatel and Lucent. Cell-phone manufacturer Motorola ( MOT) swung to a loss and lowered guidance for the full year. Pharmaceutical company AstraZeneca ( AZN) reported net income that rose year over year. Consumer products maker Colgate-Palmolive ( CL) also announced an increase in profit on rising sales.
On the merger front, Delta Air Lines ( DAL) completed its acquisition of Northwest Airlines ( NWA). Crude oil was losing $2.58 to $64.92 a barrel. Gold was shedding $14.10 to $739.90 an ounce. Longer-dated U.S. Treasury securities were falling in price. The 10-year note was down 20/32 to yield 3.93%, and the 30-year was declining 20/32, yielding 4.27%. The dollar was rising vs. the yen, but falling against the euro and pound. Overseas, European exchanges including the FTSE in London and the Dax in Frankfurt were trading higher. In Asia, Japan's Nikkei and Hong Kong's Hang Seng closed with substantial gains. ( Photo gallery: Trading Faces)