US stocks down after GDP report
Disappointing growth in the gross domestic product in the United States pushed stocks lower today even as investors welcomed a US$57bn (€43.7bn)merger between Procter & Gamble and Gillette.
Despite the losses, the major indexes eked out the first winning week of 2005.
While investors were cheered by P&G’s bid for Gillette and strong profits from Microsoft, surprisingly weak economic data robbed the markets of any buying momentum.
The Commerce Department reported that the GDP – the value of all goods and services produced in the United States – rose at an annual rate of just 3.1% in the fourth quarter, the lowest gain in seven quarters. Economists had expected a 3.5% rise.
With elections in Iraq on Sunday, a Federal Reserve meeting beginning Tuesday and the Labour Department’s monthly job creation report due next Friday, investors used the GDP figure as another reason to sell stocks ahead of these uncertainties.
The Dow Jones industrial average fell 40.20, or 0.4%, to 10,427.20.
Broader stock indicators also gave ground. The Standard & Poor’s 500 index was down 3.19, or 0.3%, at 1,171.36, and the Nasdaq composite index lost 11.32, or 0.6%, to 2,035.83.
The market finally paid attention to strong earnings and generally positive economic data over the past week, resulting in a strong two-day rally. However, anxiety over the Iraqi elections and Friday’s GDP number erased much of those gains.
Nonetheless, the major indexed were positive for the week – barely. The Dow rose 0.33%, the S&P 500 was up 0.3% and the Nasdaq climbed a meagre 0.08%. That reversed a three-week slide for all three indexes.
Wall Street had expected the economy to slow somewhat from the 4% annual pace posted in the third quarter of 2004, but Friday’s GDP reading showed far more of a slowdown than analysts had believed.
That raises concerns about profit growth for future quarters as well as the health of the labour market.
The Federal Reserve is scheduled to meet next Tuesday and Wednesday, and is widely expected to raise the nation’s benchmark interest rate to 2.5% from the current 2.25%.
While there have been concerns about rising prices and inflation, slower economic growth could keep the Fed from a more aggressive rate policy.
With economic uncertainty continuing, American corporations are holding fast to large reserves of cash, hoping for a better economic environment in which to expand. And as the recent merger activity has shown, many companies are opting to use that cash to buy other companies.
After Procter & Gamble’s bid for Gillette P&G dropped 1.17 to 54.15, while Gillette surged 5.92, or 12.96%, to 51.60.
Microsoft edged 7 cents higher to 26.18 after its earnings, announced late Thursday, surpassed Wall Street’s profit forecasts by 2 cents per share.
The software giant and Dow component also reported its first profitable quarter for its home and entertainment division, thanks to strong sales of its Xbox Live online game service and the video game hit Halo2.
Fellow Dow Jones industrials component McDonald’s saw its fourth-quarter profits triple from a year ago, though the fast-food chain fell short of Wall Street profit estimates by a penny per share. Revenues rose 10% from the year-ago quarter. McDonald’s was down 12 cents at 32.
Boeing scored a major coup over rival aircraft manufacturer Airbus SAS with a US$7.3bn (€5.6bn) deal to provide six Chinese airlines with 60 of the company’s new 7E7 Dreamliner passenger jets. It was the biggest order yet for Boeing’s newest jet. Boeing nonetheless fell 1.05 to 49.92.
Declining issues outnumbered advancers by more than 4 to 3 on the New York Stock Exchange, where volume was heavy.
The Russell 2000 index of smaller companies was down 3.90, or 0.6%, at 613.00.
