U.S. Stocks Drop as GDP Tops Forecast Amid ECB Rate Cut

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nyse-friday_1007585cU.S. stocks fell, erasing an early gain, as investors assessed data showing the economy expanded faster than estimated and the European Central Bank cut a key interest rate.

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Qualcomm Inc. dropped 3.8 percent after the largest maker of smartphone chips predicted quarterly sales that missed analysts’ estimates. Whole Foods Market Inc. slumped 9.7 percent after cutting its profit forecast. J.C. Penney Co. jumped 6.5 percent after posting its first rise in monthly same-store sales in two years. Twitter Inc., which raised $1.82 billion in its initial public offering, begins trading today in New York.

The Standard & Poor’s 500 Index (SPX) fell 0.4 percent to 1,763.19 at 10:21 a.m. in New York, reversing an earlier gain of 0.2 percent. The Dow Jones Industrial Average dropped 16.86 points, or 0.1 percent, to 15,730.02. Trading in S&P 500 stocks was in line with the 30-day average during this time of the day.

“This will certainly fuel expectations that the underlying economy is stronger than the mixed data have suggested,” Quincy Krosby, a market strategist for Newark, New Jersey-based Prudential Financial Inc., which oversees more than $1 trillion of assets, said by telephone. “The question is whether or not the markets can accept good news as good news or whether we’re still on the trajectory where good news is bad news. We’re going to reach an inflection point in the market where good news is in fact good news.”

The Dow climbed to a record yesterday and the S&P 500 closed at a one-week high as Federal Reserve officials said economic weakness warrants continued stimulus from the central bank. The broad gauge of American equities has rallied 24 percent this year, poised for the best annual performance in a decade, as corporate earnings beat estimates and the central bank kept interest rates low to spur economic growth.

GDP Growth

The economy in the U.S. expanded in the third quarter at a faster pace than forecast, led by the biggest increase in inventories in more than a year as household purchases and business investment slowed.

Gross domestic product rose at a 2.8 percent annualized rate after a 2.5 percent gain the prior three months, a Commerce Department report showed today in Washington. The median forecast of economists surveyed by Bloomberg called for a 2 percent advance. Consumer spending climbed 1.5 percent, the smallest increase since 2011.

Economic Data

Investors are watching U.S. data to gauge the health of the world’s largest economy after the Fed said last week it needs to see more evidence of sustained improvement before slowing its $85 billion monthly asset purchases.

Jobless claims decreased by 9,000 to 336,000 in the week ended Nov. 2 from 345,000 the prior period, the Labor Department reported today in Washington. Tomorrow’s monthly employment report may show payrolls rose by 120,000 workers in October after a 148,000 gain in September, while the jobless rate rose to 7.3 percent.

Fed officials have repeated in every policy statement since December that their target interest rate will remain near zero at least as long as unemployment exceeds 6.5 percent, so long as the outlook for inflation is no higher than 2.5 percent. Fed Bank of New York President William C. Dudley is scheduled to speak at an economic policy forum from 1:30 p.m. in New York.

The ECB cut its benchmark interest rate to a record low after a drop in inflation to the slowest pace in four years threatened its mission to keep prices stable. ECB President Mario Draghi lowered the benchmark interest rate to 0.25 percent from 0.5 percent, using one of his remaining interest-rate cuts to bolster the economy.

Rate Cut

The ECB now has just one more quarter-point cut left before reaching zero, increasing the likelihood of unconventional tools such as quantitative easing or a negative deposit rate if prices slow further or the economic recovery stalls. Euro-area inflation is less than half the ECB’s target and unemployment is at the highest level since the currency bloc was formed in 1999.

“If we learned anything from the last three or four years, a friendly central bank is a good thing for equity prices,” Michael Vogelzang, president and chief investment officer at Boston Advisors LLC, which manages $2.4 billion, said by phone. “Sentiment in the market is incredibly high and it’s best exemplified by the rush of IPOs coming to the market, including Twitter.”

Twitter Inc., whose website and applications let people post 140-character messages to online followers, yesterday sold 70 million shares at $26 each, putting the microblogging service at 12.4 times estimated 2014 sales of $1.14 billion, according to analyst projections compiled by Bloomberg.

Earnings Season

Walt Disney Co. and Priceline.com Inc. are among S&P 500 members posting results today. Of the 441 companies in the gauge that have reported earnings so far, 74 percent have beaten analysts’ profit forecasts, according to data compiled by Bloomberg. Income for the broad index probably increased 4.1 percent in the third quarter, and 6.8 percent in the final three months of the year, estimates compiled by Bloomberg show.

Qualcomm dropped 3.8 percent to $67.07. Sales for the three months ending in December will be $6.3 billion to $6.9 billion, the company said yesterday in a statement. Analysts on average had predicted revenue of $7.01 billion for the period, according to data compiled by Bloomberg.

Whole Foods, the largest natural-foods grocer in the U.S., lost 9.7 percent to $58.19. Profit excluding certain items will be as much as $1.69 a share in the year ending in September 2014, compared with a previous projection of as much as $1.72 and the average analyst estimate of $1.73 a share.

SolarCity Falls

SolarCity Corp. (SCTY) tumbled 10 percent to $53.60. The second-largest U.S. solar company predicted a loss of as much as 65 cents a share for the final three months of 2013, compared with the average analyst estimate of 54 cents a share.

J.C. Penney jumped 6.5 percent to $8.20. The retailer’s comparable-store sales climbed 0.9 percent in October, the first increase since December 2011.

American Eagle Outfitters Inc. rallied 8.1 percent to $15.83 after saying third-quarter earnings probably fell to 19 cents a share, exceeding its August projection for as much as 16 cents a share. The teen-clothing chain cited better-than-estimated margins for the period.

Transocean Ltd. jumped 3.8 percent to $50.91. The dual-listed offshore drilling contractor, which replaced Dell Inc. in the S&P 500 last month, posted third-quarter adjusted earnings of $1.37 per share, beating the $1.07 average analyst estimate.

Babatunde Akinsola
Babatunde Akinsolahttps://naija247news.com
Babatunde Akinsola is aNaija247news' Southwest editor. He's based in Lagos and writes on the Yoruba Nation political issues, news and investigative reports

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