Updated from 2:53 p.m. EDTFollowing a day marked by choppy but mostly positive trading, U.S. stocks finished Thursday on the upside, 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 climbed 189.73 points, or 2.1%, to 9180.69, and the S&P 500 added 24 points, or 2.6%, to 954.09. The Nasdaq jumped 41.31 points, or 2.5%, to 1698.52. 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. Consumer spending for the third quarter was down 3.1%, the biggest drop since 1980. 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 historically, a recession 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."
Steven Wieting, economist at Citigroup, wrote in an email that 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. 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%.
Several companies were tightening their belts ahead of a tough 2009. American Express ( AXP) announced it would cut jobs and reduce compensation in an effort to save $1.8 billion in costs for 2009. Shares ticked up 3.4% to $26.06. The Wall Street Journal also reported on its Web site that Motorola ( MOT) would lay off 3,000 workers, with two-thirds of the cuts coming from the cell phone division. The report emerged after Motorola swung to a third-quarter loss and offered lower guidance for the year. The stock dropped 5% to $5.19. Analyst actions 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. Goldman shares slipped 6.7% to $91.11, Morgan Stanley climbed 9% to $16.09, Citi shares added 2.8% to $13.11 and JPMorgan climbed 5.4% to $37.62. 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. MetLife edged 2.2% higher to $30.20, while Prudential plummeted 18% to $28.87. Also hit hard among insurers was Hartford ( HIG), which lost $2.6 billion in the third quarter and cut its full-year guidance. Shares sank 52% to $10.24.
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. The stock tacked on 0.5% to $75.05.
Royal Dutch Shell ( RDS.A) reported income that rose 71% year over year on higher oil prices, but shares slumped 3.1% to $54.10. Oil and natural gas firm Apache ( APA) reported a profit for the third quarter that increased 94% from the year-ago period. The stock jumped 5.5% to $78.95. Murphy Oil ( MUR), on the other hand, reported a substantial increase in third-quarter earnings but lowered guidance for the fourth quarter. Shares gained 4.9% to $49.61. Telecommunications equipment maker Alcatel-Lucent ( ALU) reported a loss on falling revenue and charges stemming from the merger between Alcatel and Lucent. The stock rocketed 9.5% to $2.53. Elsewhere, 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. AstraZeneca rose 6.9% to $42.49, and Colgate-Palmolive jumped 7.1% to $64.23. On the merger front, Delta Air Lines ( DAL) completed its acquisition of Northwest Airlines ( NWA). Delta shares soared 20% to $9.55. Crude oil lost $1.54 to settle at $65.96 a barrel. Gold shed $15.50 to close at $738.50 an ounce. Longer-dated U.S. Treasury securities were falling in price. The 10-year note was down 24/32 to yield 3.94%, and the 30-year was declining 32/32, yielding 4.3%. 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)