Wednesday, Aug 08, 2012
By Jonathan Cheng
A rise in Spain's government borrowing costs and declining global sales for McDonald's nudged U.S. stocks lower after a three-day run.
The Dow Jones Industrial Average eased 9 points, or 0.07%, to 13159 and the Standard & Poor's 500-stock index fell 1.9 points, or 0.14%, to 1399, while the Nasdaq Composite gave up 8 points, or 0.3%, to 3007.
The modest pullback came after a three-day run that added 290 points to the Dow and pushed the blue-chip measure to its highest level since May.
Pulling on the downside were consumer discretionary and telecommunications stocks. McDonald's suffered the biggest fall among Dow components, falling 1.6% after the fast-food giant reported declining sales across all three of its global regions, disappointing expectations.
On the positive side, materials and consumer staple stocks nudged higher. Hewlett-Packard tacked on 2.4% to lead the blue-chip components, after the tech giant raised its earnings forecast for the third quarter and named new leaders for its enterprise services division.
But the heavier weighting of McDonald's on the Dow more than offset H-P's gains, and singlehandedly accounted for the bulk of the Dow's negative slant.
In spite of the day's pullback, the Dow remains just 1% off a multi-year high, and is within 8% of its all-time high.
"Given that we avoid those landmines--the European situation and the fiscal cliff looming--the recovery can continue and do better heading into next year," said Josh Feinman, global chief economist for DB Advisors, Deutsche Bank's institutional asset-management business. With economic estimates for the U.S. and the rest of the world falling, "the bar has been lowered and the economy can at least match, if not exceed, those admittedly lower expectations."
In addition, Mr. Feinman said, central banks remain accommodative and U.S. companies have shown their ability to maintain their fat profit margins.
Meantime, a pickup in Spanish government borrowing rates weighed on sentiment. On Wednesday, the yield on the 10-year government bond ticked briefly above the 7% level that many investors consider unsustainable, trading recently at 6.934%, according to Tradeweb. Spain's IBEX 35 fell 1.4%.
More broadly, the Stoxx Europe 600 fell 0.2% and London's FTSE 100 shed 0.4% after the Bank of England cut its outlook and Standard & Poor's lowered its outlook on Greece's credit rating to negative from stable.
The ratings firm said the government in Athens will find it difficult to make further cuts to meet required conditions to secure funding from the European Union and the International Monetary Fund.
Meantime, the BOE now expects the U.K. economy to be growing at an annual rate of just over 2% at the end of 2013, down from its forecast of around 2.5% in May.
Asian markets closed broadly higher, tracking previous gains in the U.S. and Europe. Japan's Nikkei Stock Average rose 0.9% to a one-month high and China's Shanghai Composite gained 0.2% to rise for the fourth straight day.
In U.S. economic data, the productivity of U.S. workers increased at a 1.6% annual rate during the quarter, better than expectations for a 1.3% rise. However, labor costs rose by 1.7%, much higher than estimates of a 0.6% increase.
Crude-oil futures added 0.3% to about $94 a barrel, while gold futures edged up to about $1,615 an ounce. The U.S. dollar moved higher against the euro but slipped against the yen. Treasurys rose, pushing the yield on the benchmark 10-year Treasury note higher to 1.62%.
Shares of Walt Disney rose 1.3% after the Dow component reported fiscal third-quarter earnings that exceeded analyst estimates but revenue that fell short of expectations.
Priceline.com dropped 16% after the online travel agent reported second-quarter earnings that beat estimates but provided a third-quarter outlook that was well below current projections, citing intensifying economic uncertainty across Europe, Asia and the U.S.
Dean Foods led S&P 500 components, surging 37% after the dairy company reported better-than-expected second-quarter earnings, provided an upbeat outlook for the third quarter and for the year and said its WhiteWave Foods subsidiary filed for an initial public offering.
MEMC Electronic Materials shot up 25% after the silicon wafer technologies company reported a second-quarter adjusted profit, compared with expectations of a slight loss, and revenue that was well above forecasts.
Carlyle Group fell 2.7% after the private-equity firm disappointed expectations and saw revenues tumble in the second quarter. Carlyle also saw its assets under management slip from the previous quarter.
Write to Jonathan Cheng at jonathan.cheng@dowjones.com
(END) Dow Jones Newswires
August 08, 2012 11:06 ET (15:06 GMT)
