Stocks edge lower as consumer confidence falls; Mixed earnings reports weigh on market

NEW YORK (AP) — An economic reality check is putting the stock market rally back on hold. Stocks mostly fell Tuesday after the Conference Board said consumer confidence weakened more than expected in July. The Dow Jones industrial average fell about 40 points in afternoon trading as investors worried that consumers’ waning confidence and the rising unemployment rate would hamper the economy’s ability to rebound from the longest recession since World War II.

If consumers don’t step up spending, companies will find it hard to boost revenue. The recent string of stronger corporate profits have come from deep cost-cutting, which can only be used to lift earnings for so long.

But even without the consumer confidence report, analysts have been anticipating some pullback after the market soared 11 percent in just two weeks on surprisingly strong corporate profit reports. The latest run restarted a rally that began in March but faltered in mid-June on lackluster economic data.

Trading was cautious Tuesday after the latest round of earnings reports. Office Depot Inc. said its second-quarter loss widened and results fell short of analysts’ expectations and luxury handbag maker Coach Inc. said shoppers showed up at factory outlet stores but held off buying pricier items at U.S. department stores.

The third upbeat reading on the housing market since last week helped temper the market’s disappointment. The S&P/Case-Shiller Home Price index indicated that home prices posted their first monthly increase since the summer of 2006. Prices in major metropolitan markets rose 0.5 percent in May from April.

The report is the latest since last week to signal that home sales are stabilizing.

Adam Gould, senior portfolio manager at Direxion Funds in New York, said the recent earnings and economic data had lifted investors’ expectations too quickly.

“The sentiment has changed from expecting the worst a couple of weeks ago and being pleasantly surprised to expecting good things now and being disappointed,” he said.

In late afternoon trading, the Dow fell 39.68, or 0.4 percent, to 9,068.83 after being down as much as 101 points. The broader Standard & Poor’s 500 index fell 5.63, or 0.6 percent, to 976.55. The Nasdaq composite index slipped 0.22, or less than 0.1 percent, to 1,967.67 after several technology companies announced acquisitions.

Three stocks fell for every two that rose on the New York Stock Exchange, where volume came to 870 million shares, compared with 695.3 million shares traded at the same point Monday.

Investors were cautious after a Treasury Department auction of two-year notes generated lackluster demand. The yield on the two-year note, which moves opposite its price, rose to 1.10 percent from 1.05 percent late Monday. The yield on the benchmark 10-year Treasury note fell to 3.70 percent from 3.73 percent.

Investors are anxious about government debt auctions because if demand falters Washington could have to entice buyers with higher interest rates. That could hurt an economic rebound.

On Monday, stocks posted small gains after investors grappled with mixed earnings and economic reports. The market also logged a modest advance Friday.

Even with the selling Tuesday the stock market’s rally appears intact. That is a sign that even many cautious investors aren’t willing to pull out of stocks for fear of missing another leg of the rally.

“There is uncertainty about how fast the rally can go and how far it can go,” said Robert Phillips, a managing director at Spectrum Management Group of Raymond James & Associates.

Earnings results tempered investors’ optimism. Office Depot said consumers and small businesses continued to pare spending, especially on pricier items like furniture and computers. The office-supply chain tumbled 98 cents, or 18.3 percent, to $4.37.

Coach fell 88 cents, or 3.1 percent, to $27.55 after the company reported that its fiscal fourth-quarter earnings dropped 32 percent.

Not all corporate news was downbeat. Textron Inc. jumped $2, or 17.9 percent, to $13.15 after the maker of Cessna planes, Bell helicopters and turf maintenance equipment posted a profit excluding charges. Analysts had expected a loss.

Investors welcomed dealmaking in the tech industry. The willingness of companies to pursue rivals is seen as a sign of confidence in the economy.

IBM Corp. agreed to acquire software maker SPSS Inc. for $1.2 billion. SPSS jumped $14.25, or 40.6 percent, to $49.34, while IBM fell 86 cents to $116.77.

Sprint Nextel Corp. intensified its focus on the market for prepaid cell phone service by announcing a $483 million agreement to scoop up Virgin Mobile USA Inc. Virgin Mobile rose 99 cents, or 23.5 percent, to $5.20 and Sprint edged down 2 cents to $4.53.

The dollar was mixed against other major currencies, while gold prices fell.

Light, sweet crude fell $1.15 to settle at $67.23 a barrel on the New York Mercantile Exchange.

The Russell 2000 index of smaller companies fell 1.49, or 0.3 percent, to 549.39.

Overseas, Britain’s FTSE 100 fell 1.3 percent, Germany’s DAX index lost 1.5 percent, and France’s CAC-40 slid 1.2 percent. Japan’s Nikkei stock average slipped less than 0.1 percent.

source: yahoo finance

Tags: confidence data, dow, earnings, IBM, nasdaq, stocks

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