November 30, 2004

Stocks Sag on Sliding Consumer Confidence

NEW YORK - Stocks sagged Tuesday as sliding consumer confidence trumped the latest report on the nation's gross domestic product, which grew at a faster pace than expected.

After a modest opening weekend to the holiday shopping season, a fourth straight monthly decline in consumer confidence was the last thing investors wanted to see. But analysts weren't overly alarmed by the selling, noting that it seemed relatively controlled and was typical of the sort of pause stocks often see after Thanksgiving and ahead of the seasonally strong month of December.

"We don't like to see consumer confidence reduced as we go into the Christmas holiday season, but going by what we saw from sales over the weekend, we think sales will be pretty good," said Alfred E. Goldman, chief market strategist with A.G. Edwards & Sons. "December has been a strong month for the market historically, with its Santa Claus rally ... but late November and early December is often a period when you see a pause to refresh."

In the final hour of trading, the Dow Jones industrial average was down 25.94, or 0.25 percent, at 10,449.96.

The broader gauges were also narrowly lower. The Standard & Poor's 500 index shed 2.42, or 0.21 percent, to 1,176.15. The Nasdaq composite index fell 4.63, or 0.22 percent, to 2,102.24.

Brisk consumer and business spending helped the economy grow at an annual rate of 3.9 percent during the third quarter, stronger than previously thought. U.S. exports, buoyed by a weaker dollar, also contributed to the overall economic growth.

The latest GDP reading was a significant pickup over the second quarter's 3.3 percent pace. GDP, which measures the value of all goods and services produced within the United States, is considered the broadest measure of the economy's health. Some analysts think the economy will expand slightly faster than 4 percent in the current quarter.

But consumer sentiment didn't match the bullish GDP data. The Conference Board's index of consumer confidence registered a fourth consecutive decline, reflecting doubts about the economy in the months ahead. The index fell to 90.5 from a revised reading of 92.9 in October; analysts expected a reading of 96.0 for November.

Economists keep a close watch on consumer confidence measures because consumer spending accounts for two-thirds of all U.S. economic activity.

Analysts are also keeping an eye on the impact high energy prices are having on economic activity. Oil prices hit a record high of just over $55 a barrel in late October, but have hovered near the $50 range recently. Crude futures slid 63 cents to settle at $49.13 per barrel on the New York Mercantile Exchange.

"The benchmark now for most people is $50 a barrel ... that's the world we're living in today," said Thomas F. Lydon Jr., president of Global Trends Investments in Newport Beach, Calif. "As long as oil is under that benchmark, I think most people on Wall Street are pretty comfortable. The concern is, what are we going to do about future oil prices and supply? That probably is the biggest cloud hanging over the economy today."

Despite persistently lofty oil prices, inflation remains under control, at least from an economic point of view. An inflation gauge tied to the GDP report showed prices, excluding food and energy, rose at an annual rate of just 0.7 percent, down from a 1.7 percent growth rate during the second quarter. It was the lowest reading since 1962.

Encouraged by the economy's performance, the Federal Reserve has raised short-term interest rates four times this year, and analysts think another rate hike is likely when the policy makers meet in two weeks.

Among the day's gainers in stocks, Pfizer Inc. was up 72 cents at $28.05 after reaffirming its earnings forecast for the year.

Smithfield Foods Inc. rose 95 cents, or 3.4 percent, to $28.85, after matching earnings as sharply improved hog production offset lower pork margins and a modest loss in the beef segment.

On the Nasdaq market, Taser International Inc. was up $2.26, or 8.9 percent, at $27.72, as the company defended its stun gun against calls by Amnesty International to suspend use of the product until more testing is done to determine its safety.

Decliners outnumbered advancing issues by about 4 to 3 on the New York Stock Exchange. Volume came to 1.08 billion shares, compared to 1.06 billion shares traded at the same point Monday.

The Russell 2000 index, which tracks smaller company stocks, was up 0.47, or 0.07 percent, at 634.93.

Overseas, Japan's Nikkei stock average shed 0.72 percent. In Europe, France's CAC-40 declined 0.71 percent, Britain's FTSE 100 fell 0.98 percent and Germany's DAX index dipped 0.51 percent.


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