U.S. shares end well off session lows

Stocks end well off lows

Treasurys fumble as averages recover

NEW YORK (CBS.MW) — The stock averages reclaimed lost ground to end little changed Thursday, with investors retaining a cautious stance amid nagging uncertainty over the timing of an economic recovery.

The Nasdaq ended marginally lower, declining for five straight sessions, while the Dow Industrials closed out with a meager gain.

“The stock averages are holding at the lower end of the range and are reaching oversold conditions — that’s a positive. But the market needs evidence that the economy is turning. That’s why next week’s July retail sales report will be so important,” said Joseph Gunnar’s chief market strategist Donald Selkin.

The S&P Investment Policy Committee said in a research note that the clock is ticking on the beneficial effects from tax rebates and interest rate cuts.

The largest declines within technology on Thursday were in the Internet, hardware and networking segments while software issues gained ground. The broad market saw the beefiest losses in the biotech, brokerage, airline, transportation and cyclical sectors while upside moves were seen in the typical safe havens: gold and utility issues. Shares of natural gas, oil and oil service companies also lifted nicely. Check market stats and latest sector performance.

The Dow Jones Industrial Average ($INDU) rose 5.06 points to 10,298.56 after declining as much as 88 points intraday. Taking a dip into negative terrain were shares of International Paper, Honeywell, Caterpillar, Wal-Mart, 3M and Philip Morris. But United Technologies, Procter & Gamble, Home Depot, Walt Disney, Eastman Kodak and General Motors gained some traction.

“We’ve been in the fog for such a long time that everyone’s scared to death of getting hit by something they don’t see coming. When you can’t see anything, every bit of noise gets magnified,” observed John Forelli, portfolio manager at Independence Investment.

“The same store sales reports seemed to spook a market that (appears) more fearful that the consumer will disappear and pull us into a recession than it is hopeful that business spending will reappear and pull us out of the slowdown,” Forelli added. He said another 1/4 point rate cut from the Fed later in the month will work to buck up confidence but said investors now need to see hints of a recovery to get involved in the market again.

The Nasdaq Composite ($COMPQ) slipped 3.04 points, or 0.2 percent, to 1,963.32 while the Nasdaq 100 Index ($NDX) added 2.72 points, or 0.2 percent, to 1,628.92.

The Standard & Poor’s 500 Index ($SPX) edged down 0.10 point while the Russell 2000 Index ($RUT) of small-capitalization stocks rose 0.3 percent.

Volume came in at 1.09 billion on the NYSE and at 1.46 billion on the Nasdaq Stock Market. Market breadth was mixed, with advancers outpacing decliners by 17 to 14 on the NYSE while losers took out winners by 20 to 17 on the Nasdaq.

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Tech action

The fiber-optic sector pondered more cautious comments from Nortel Networks and posted across-the-board losses. The Canadian telecom equipment concern (NT) saw its shares fall 0.8 percent after saying late Wednesday in a Securities and Exchange Commission filing that it doesn’t expect a recovery in capital spending to take place before the second half of 2002 and indicated it wouldn’t provide year-end forecasts. The company said there “can be no certainty as to the duration or severity of this industry adjustment” and also announced that it would be selling $1 billion in convertible notes. Sycamore Networks slumped 2.8 percent and JDS Uniphase 1.9 percent.

In merger news, Solectron (SLR) announced it’s nabbing electronics contract manufacturer C-Mac (EMS) in a stock and debt deal valued at $2.7 billion that Solecton expects will pave the way for its expansion in the auto industry. The deal values C-Mac shares at $30.27, or at a 33 percent premium from Wednesday’s closing price. Solectron expects the acquisition to create costs-savings and revenue opportunities of $60 million to $120 million, and will add to profits in fiscal 2002. Solectron fell 9.9 percent while C-Mac surged 14.8 percent. Among the other electronics manufacturing services, Flextronics lost 0.3 percent, Sanmina 1.6 percent while Jabil Circuit gave up 2.7 percent.

Software stocks traded mixed after getting clobbered on Wednesday. Upside movers included BEA Systems (BEAS), up 2.2 percent, and PeopleSoft, up 3 percent. UBS Warburg said in a note to clients that it would “buy BES at current levels with the understanding that there may be 20 percent downside immediately after (the company) reports if their commentary on backlog is not good.” But Warburg said it believes the downside will only be temporary as BEA is a company investors will want to own when the economy comes out of the current downturn.

Broad market action

The same-store sales reports from retailers flooded the market early Thursday and the S&P Retail Index ($RLX) ended down 0.4 percent, adding to Wednesday’s losses.

Among the big names: Wal-Mart Stores (WMT) reported that July comparable sales that were up 6 percent from the same period last year, Target (TGT) said its same-store sales grew 4.6 percent in July and Gap (GPS) reported that comparable-store sales fell 12 percent. Gap also revealed that it expects earnings of 11 cents a share in the second quarter, in line with current analyst views. Federated Dept. Stores (FD) said same-store sales were down 4.2 percent in July and Kmart (KM) posted a same-store sales increase of 3.4 percent in July. Finally, J.C. Penney (JCP) said comparable dept. store sales rose 2.2 percent in July and said it expects second-quarter results to be “slightly better” than analysts’ expectations. Gap fell 5.8 percent, Federated 1.7 percent, J.C. Penney 2.4 percent and Kmart 4.3 percent while Target ended up 0.5 percent.

Abercrombie & Fitch (ANF) was among the biggest downside movers, shaving a meaty 17.0 percent after reporting a 15 percent decrease in July same-store sales. The company also said that it expects earnings per share for the second quarter to meet or slightly exceed its previous earnings guidance of 22 cents per share. Thomson Financial/First Call is anticipating EPS of 23 cents a share.

Brokerage issues also fumbled, with the Amex Securities Broker/Dealer Index ($XBD) down 2.5 percent. UBS Warburg analyst Diane Glossman cut third-quarter, fiscal 2001 and fiscal 2002 estimates on four of the top brokers: Goldman Sachs (GS), Lehman Brothers (LEH), Merrill Lynch (MER) and Morgan Stanley (MWD). The analyst cited weakness in investment banking and trading. For Lehman Brothers specifically, Warbug said there will be less ability for fixed-income to prop up its financial results. Merrill gave up 1.8 percent, Lehman 1.6 percent, Morgan Stanley 3.7 percent and Goldman 2.1 percent.

A slump in the broad market brought out the gold bulls, which has traditionally been a safe-haven sector. The CBOE Gold Index ($GOX) swelled 4.4 percent and was the biggest upside mover within the broad market. Gold for December delivery rallied $5.50 to $276.20. Among stocks in the group, Newmont Mining (NEM) gained 7.1 percent and Placer Dome (PDG) 6.5 percent.

While biotech stocks got slammed Thursday, shares of stem cell firms flew in anticipation of President Bush’s announcement of whether to allow federal funding for the research. StemCells (STEM) jumped 36.4 percent while Aastrom Biosciences (ASTM) surged 25.7 percent and Geron (GERN) jumped 15.8 percent.

Read for the latest individual stock action.

Treasury focus

Government bonds traded lower after an early rally as stock prices were swept off session lows and investors contended with the last leg of Treasury’s refunding auctions: $5.0 billion in 30-year bonds.

Still, Treasurys have had a magnificent run of late. The perception that an economic rebound may not be as sturdy as many had hoped drove yields sharply lower. The 10-year note’s yield plunged below 5 percent for the first time in four months and the 2-year’s yield plunged to its lowest level since the fall of 1993.

The 10-year Treasury note shed 12/32 to yield ($TNX) 5.035 percent while the 30-year government bond dropped 11/32 to yield ($TYX) 5.535 percent.

On the economic front, weekly initial claims rose 33,000 to 385,000 in the latest week while July import prices fell 1.6 percent.

“There really is an upside to the strong dollar. It’s helping to keep import prices and therefore inflationary pressures down and that gives the Fed free hand to do whatever it takes to get the economy rolling again,” opined Joel Naroff, chief economist at Naroff Economic Advisors.

Friday will see the release of the July producer price index, seen declining 0.3 percent. The core, which excludes the food and energy components, is expected to edge up 0.1 percent. and economic calendar and forecasts.

But the dollar plunged against both the euro and the yen Thursday in a move than intensified in intraday action. Dollar/yen plunged 1.5 percent to 121.76 while euro/dollar swelled 1.4 percent to 0.8920.