Stocks Dip Despite Respectable GDP Growth
NEW YORK – Investors took profits and sent stocks lower Friday despite respectable growth in the nation’s gross domestic product and a bullish consumer confidence report.
The Commerce Department’s latest reading on GDP showed the economy growing at an annualized rate of 3.4 percent. While economists had expected GDP growth to come in at 3.5 percent, it was considered a strong showing considering the high energy costs that continue to plague the economy.
“This is good growth, and it’s not the type of growth that’s going to scare people from an inflation standpoint,” said Mark Bronzo, managing director at Gartmore Separate Accounts. “However, from this number, I would think the Federal Reserve will continue to raise interest rates, at least for the next few meetings.”
The Fed next meets Aug. 9, and is widely expected to raise the nation’s benchmark interest rate by a quarter percentage point to 3.5 percent. The prospect of further rate hikes may also have been a factor in profit-taking by investors fearing a further slowdown in the economy.
In midday trading, the Dow Jones industrial average fell 37.89, or 0.36 percent, to 10,667.66.
Broader stock indicators also moved higher. The Standard & Poor’s 500 index was down 4.92, or 0.40 percent, to 1,238.80, and the Nasdaq composite fell 9.93, or 0.43 percent, to 2,188.51.
Profit-taking extended to the bond market, which rallied Thursday but dropped sharply Friday. The yield on the 10-year Treasury note climbed to 4.26 percent from 4.19 percent late Thursday. The dollar gained ground against the euro, and gold prices also rose.
Fears about oil’s affect the economy contributed to the negative tone as oil prices again topped $60 per barrel. A barrel of light crude was quoted at $60.85, up 91 cents, on the New York Mercantile Exchange.
The market’s losses were limited, however, as a key barometer of future economic growth showed consumers appear willing to spend despite higher oil and gas prices. The University of Michigan’s consumer sentiment index for July came in at 96.5, slightly higher than the June reading and in-line with analysts’ expectations.
In earnings news, natural gas and oil company Unocal Corp. slipped 40 cents to $64.80 despite reporting strong earnings that beat Wall Street’s forecasts by 14 cents per share. The company, which focuses on exploration, is the subject of a bidding war between Chevron Corp. and CNOOC Ltd., China’s state-owned energy company.
Unocal stock may have lost momentum after two newspapers reported CNOOC could drop its bid for the company. According to the Financial Times and Hong Kong’s South China Morning Post, CNOOC is considering whether to raise its bid for Unocal or drop it entirely due to the intense outcry from politicians worried about Chinese ownership of an American energy company. CNOOC’s U.S. depositary receipts rose $4.03 to $69.23.
Chevron lost 40 cents to $58.54 after its quarterly earnings also beat expectations. While profits fell 11 percent, Chevron’s profits were 7 cents per share better than analysts’ estimates. The strong showing could make Chevron’s bid more attractive.
Profits at insurance company MetLife Inc. more than doubled in the second quarter due to strong revenues across its business lines. MetLife, which beat Wall Street’s profit forecasts by 27 cents per share, rose $1 to $49.06.
Fast-food chain Wendy’s International Inc. surged 12 percent, gaining $5.23 to $50.50 after posting better-than-expected earnings, but lowering its full-year earnings forecast. The company also announced it would spinoff part of its Tim Horton’s coffee-and-doughnut franchise into an initial public offering.
Declining issues led advancers by about 4 to 3 on the New York Stock Exchange, where volume came to 566.83 million shares, compared with 667.30 million at the same point on Thursday.
The Russell 2000 index of smaller companies fell 2.74, or 0.40 percent, to 680.30.
Overseas, Japan’s Nikkei stock average rose 0.35 percent. In afternoon trading, Britain’s FTSE 100 was up 0.23 percent, Germany’s DAX index fell 0.12 percent, and France’s CAC-40 fell 0.24 percent.
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